USD/JPY – Yen Climbs as Japanese GDP Beats Estimate

USD/JPY has steadied in the Thursday session, after the yen posted strong gains in Wednesday trade. In the North American session, the pair is trading at the 111 level. On the release front, Japanese Preliminary GDP in the first quarter improved to 0.5%, edging above the forecast of 0.4%. US numbers were strong, as unemployment claims dropped to 232 thousand, lower than the forecast of 240 thousand. As well, the Philly Fed Manufacturing Index soared to 38.8, crushing the forecast of 19.9 points. In Washington, Treasury Secretary Steven Mnuchin will testify before the Senate Banking Committee on the rollback of the Dodd-Frank finance regulations.

It’s been an excellent week for the Japanese yen, which has recorded strong gains of 2.0 percent. The safe-haven yen has become a favorite for nervous investors, as the political turmoil which has gripped Washington has soured investors on the stock markets and the greenback. The yen’s gains mirror continuing trouble for the Trump administration, which is lurching from crisis to crisis. The latest development is that the Justice Department has agreed to appoint a former FBI director as independent counsel to investigate possible Russian involvement in the US presidential election as well as any connection between Trump and the Russians during the election campaign. On Tuesday, media reports surfaced that Trump asked former FBI director James Comey to end an investigation into ties between Russia and Trump’s former security adviser, Michael Flynn. Adding to Trump’s troubles, the president is under fire for passing classified intelligence to the Russian foreign minister. Trump initially denied the claim, but has since admitted that he did share intelligence with the Russians, arguing that he had acted within his rights. With the Trump administration frantically trying to douse political fires, investors are growing increasingly nervous that Trump’s plans for a stimulus package and tax reform will stall, and these jitters have sent stock markets downwards.

Political Uncertainty Roils Global Markets

What’s next for the Bank of Japan? More of the same, according to BoJ Governor Haruhiko Kuroda. On Wednesday, Kuroda said that he was confident that the central bank could smoothly exit from its huge monetary stimulus at a time of its choosing, but noted that wages and inflation remained sluggish, despite a stronger economy. Kuroda added that the central bank had no plans to revise its monetary stance, and said that the Federal Reserve’s tightening stance would not affect the monetary stance of the BoJ. Stronger global demand has boosted Japan’s manufacturing and export sectors, but inflation is stuck around zero percent and consumer spending remains soft. We’ll get a look at Tokyo Core CPI and other inflation indicators next week. If the economy continues to improve and inflation numbers exceed expectations, the BoJ may have to revisit its ultra-loose monetary stance.

USD/JPY Fundamentals

Wednesday (May 17)

• 19:50 Japanese Preliminary GDP. Estimate 0.4%. Actual 0.5%
• 19:50 Japanese Preliminary GDP Price Index. Estimate -0.7%. Actual -0.8%

Thursday (May 18)

• 8:30 US Unemployment Claims. Estimate 240K. Actual 232K
• 8:30 US Philly Fed Manufacturing Index. Estimate 19.9. Actual 38.8 
• 10:00 US CB Leading Index. Estimate 0.4%. Actual 0.3%
• 10:00 US Treasury Secretary Steven Mnuchin Speaks
• 10:30 US Natural Gas Storage. Estimate 61B. Actual 68B

*All release times are GMT

*Key events are in bold

USD/JPY for Thursday, May 18, 2017

USD/JPY May 18 at 11:15 EDT

Open: 110.80 High: 111.42 Low: 110.23 Close: 111.09

USD/JPY Technical

USD/JPY posted gains in the Asian session but gave up some of these gains in European trade. The pair is steady in North American trade

• 110.94 was tested earlier in support. It is a weak line
• 112.57 is the next line of resistance
• Current range: 110.94 to 112.57

Further levels in both directions:

• Below: 110.94, 109.77 and 108.13
•  Above: 112.57, 113.55, 114.96 and 115.90

OANDA’s Open Positions Ratio

USD/JPY ratio has shown gains towards long positions, consistent with strong losses by USD/JPY on Wednesday. Currently, long positions have a majority (56%), indicative of trader bias towards USD/JPY continuing to move to higher levels.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.