USD/JPY – Dollar Shrugs off Soft U.S. PPI, Pressures Yen

USD/JPY has posted gains in the Wednesday session. In North American trade, the pair is trading at 110.63, up 0.45% on the day. The pair has posted two straight winning days, and is up 2.0% this week. On the release front, Japanese data beat expectations, but this was not enough to stem the dollar’s rally. The BSI Manufacturing Index jumped 9.4 points in the second quarter, its strongest reading in two years. Japanese PPI improved to 2.9%, just shy of the estimate of 3.0%. In the US, inflation numbers improved in August, but fell short of the estimates. PPI improved to 0.2%, shy of the estimate of 0.3%. As well, Core CPI gained 0.1%, short of the forecast of 0.2%. On Thursday, we’ll get a look at US CPI and unemployment claims.

The yen continues to lose ground, as investors have quickly put the Korean hot spot behind them, at least for the time being. In recent weeks, risk appetite has waned, as North Korea as inflamed tensions by firing missiles over Japan and testing nuclear devices, much to the consternation of the US, Japan and South Korea. As a safe-haven asset, we could see investors quickly return to the reliable yen if the war of words between US President Trump and North Korean President Kim Jong-un escalates. If the uneasy calm between North Korea and South Korea continues, the dollar could punch above the 111 level, which was last reached in August.

Despite a strong economy, US inflation levels remain stubbornly weak, well below the Federal Reserve’s inflation target of 2.0%. This was underscored on Wednesday, as PPI and Core PPI missed their estimates in August, although both releases did rebound compared to the July readings. The US labor market remains very strong, but wage pressure has been limited, despite the fact that many businesses cannot fill job openings. Weak inflation has hampered the Fed’s plans to raise interest rates a third time this year, and the odds of a December rate hike are currently pegged at 41%, as the markets are increasingly doubtful that the Fed will make a move before next year. If the August CPI numbers beat expectations, the likelihood of a December hike should move closer to 50%.

USD/JPY Fundamentals

Tuesday (September 13)

• 19:50 Japanese BSI Manufacturing Index. Estimate 4.8. Actual 9.4
• 19:50 Japanese PPI. Estimate 3.0%. Actual 2.9%

Wednesday (September 13)

• 8:30 US PPI. Estimate 0.3%. Actual 0.2%
• 8:30 US Core PPI. Estimate 0.3%. Actual 0.1%
• 10:30 US Crude Oil Inventories. Estimate 4.1M
• 13:01 US 10-y Bond Auction
• 14:00 US Federal Budget Balance. Estimate -118.6B

Upcoming Key Events

Thursday (September 14)

• 8:30 US CPI. Estimate 0.3%
• 8:30 US Core CPI. Estimate 0.2%
• 8:30 US Unemployment Claims. Estimate 303K

*All release times are GMT

*Key events are in bold

USD/JPY for Wednesday, September 13, 2017

USD/JPY September 13 at 11:25 EDT

Open: 110.15 High: 110.65 Low: 109.90 Close: 110.63

USD/JPY Technical

USD/JPY was flat in the Asian and European sessions. The pair has posted gains in North American trade

• 110.10 has switched to support as USD/JPY continues to move to higher ground
• 110.94 is the next resistance line

Current range: 110.10 to 110.94

Further levels in both directions:

• Below: 110.10, 108.69, 107.49 and 106.28
• Above: 110.94, 112.57 and 113.55

OANDA’s Open Positions Ratios

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

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.