USD/JPY – Yen Dips as BoJ Pushes Back Inflation Target

USD/JPY has posted slight gains in Thursday trading. In the North American session, the pair is trading at 112.12, up 0.15% on the day. On the release front, the Bank of Japan maintained rates at 0.10%, but extended the timeline for its inflation target. In the US, indicators were mixed. Unemployment claims dropped to 233 thousand, marking a 9-week low. As well, the Philly Fed Manufacturing Index slowed down to 19.5, its weakest reading since November 2016.

There were no surprises from the Bank of Japan, which maintained its ultra-loose monetary policy. The bank kept interest rates at 0.10% and maintained its inflation target at 2.0%. However, in light of persistently low inflation levels, the BoJ extended the timeline for the inflation target by one year, saying it expected inflation to reach 2% by fiscal year 2020. The BoJ has kept in place its inflation timeframe of 2% since 2013, and has had to postpone it six times, as the bank’s radical asset-purchase program has failed to end deflation. BoJ Governor Haruhiko Kuroda has insisted that the inflation target is feasible, and has blamed low inflation on external factors, such as low oil prices. The bank was more upbeat in its economic forecast than in June, but with the bank stubbornly clinging to its inflation target, the markets don’t expect any withdrawal of stimulus until 2018 at the earliest.

It’s been another brutal week for the Trump administration, which is sorely in need of a legislative victory in Capitol Hill. One of Trump’s flagship projects has been replacing Obamacare, but that goal may have been dashed this week. Trump’s health care bill has stalled in the Senate before lawmakers even had a chance to vote on the proposal. With some conservative Republicans coming out against the bill, it’s questionable if the Republicans can pass another version before Congress takes a recess in August. Trump had promised to pass a health care before the summer break, so his credibility and popularity will take another hit if he’s unable to produce. Trump has been in office for six months, but has been unable to get Congress to pass any significant bills, even though the Republicans enjoy a majority in both houses of Congress. With this latest setback, there is growing skepticism as to whether Trump will be able to convince Congress to pass other key parts of his agenda – tax reform and fiscal spending.  This paralysis on Capitol Hill has deepened investor pessimism about Trump’s legislative agenda and is weighing on the US dollar.

BOJ as expected

USD/JPY Fundamentals

Wednesday (July 19)

• 19:50 Japanese Trade Balance. Estimate 0.12T. Actual 0.08T
• 23:10 BoJ Monetary Policy Statement
• 23:10 BoJ Outlook Report
• 23:10 BoJ Policy Rate. Estimate -0.10%. Actual -0.10%

Thursday (July 20)

• 00:30 Japanese All Industries Activity. Estimate -0.8%. Actual -0.9%
• 2:30 BoJ Press Conference
• 8:30 US Unemployment Claims. Actual 245K. Actual 233K
• 8:30 US Philly Fed Manufacturing Index. Estimate 23.4. Actual 19.5
• 10:00 US CB Leading Index. Estimate 0.4%
• 10:30 US Natural Gas Storage. Estimate 39B

*All release times are GMT

*Key events are in bold

USD/JPY for Thursday, July 20, 2017

USD/JPY July 20 at 9:15 EDT

Open: 111.88 High: 112.42 Low: 111.77 Close: 112.12

USD/JPY Technical

USD/JPY has edged higher in the Asian and European sessions

• 110.94 is providing support
• 112.57 is the next resistance line

Current range: 110.94 to 112.57

Further levels in both directions:

• Below: 110.94, 110.10 and 108.63
•  Above: 112.57, 113.55, 114.37 and 115.51

OANDA’s Open Positions Ratios

USD/JPY ratio is showing gains in long positions. Currently, long positions have a majority (54%), indicative of trader bias towards USD/JPY continuing to move higher.

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