USD/JPY – Yen Shrugs as Tankan Mfg. Index Jumps in Q3

USD/JPY is showing little movement in the Monday session. In North American trade, the pair is trading at 112.71, up 0.22% on the day. On the release front, Japan released the Tankan Manufacturing and Non-Manufacturing indices for the third quarter. The manufacturing index jumped to 22, easily beating the forecast of 18 points. On the services front, the Non-Manufacturing index remained unchanged at 23 points, just shy of the estimate of 24 points. In the US, ISM Manufacturing PMI accelerated to 60.8, beating the forecast of 57.9. This was the indicator’s highest level since April 2011. On Tuesday, Japan releases BOJ Core CPI and Consumer Confidence.

Japanese manufacturing data has been pointing upwards, so it should come as a surprise that the Tankan Manufacturing Index, which measures confidence levels among large manufacturers, continues to accelerate in 2017. The indicator came in at 12 points in Q1, 14 points in Q2 and an impressive 22 points in Q3, its highest level since 2007. The manufacturing sector has benefited from a stronger global economy, as the demand for Japanese products remains strong. The weak Japanese currency has also helped strengthen the manufacturing and export sectors.

Inflation levels are mired at low levels, but traders shouldn’t expect the Bank of Japan to tighten its monetary policy anytime soon. The Bank is currently purchasing assets at a rate of JPY 80 trillion per year, and BoJ Governor Haruhiko Kuroda has essentially ruled out any tapering of stimulus before inflation moves closer to the BOJ target of just below 2 percent. The Bank does not appear concerned that inflation is unlikely to rise in the near future, as the Bank’s most recent forecast noted that this target would not be met until 2020. The BoJ released the minutes of its August policy meeting last week, with policymakers expressing optimism that inflation will move higher. There’s no arguing that the economy has rebounded in 2017, but it’s questionable whether stronger economic growth will trigger higher inflation – this has clearly not been the case in the eurozone or the US, where inflation levels remain well below the 2 percent mark.

USD/JPY Fundamentals

Sunday (October 1)

• 19:50 Japanese Tankan Manufacturing Index. Estimate 18. Actual 22
• 19:50 Japanese Tankan Non-Manufacturing Index. Estimate 24. Actual 23
• 20:30 Japanese Final Manufacturing PMI. Estimate 52.6. Actual 52.9

Monday (October 2)

• 9:45 US Final Manufacturing PMI. Estimate 53.0. Actual 53.1
• 10:00 US ISM Manufacturing PMI. Estimate 57.9. Actual 60.8
• 10:00 US Construction Spending. Estimate 0.4%. Actual 0.5%
• 10:00 US ISM Manufacturing Prices. Estimate 64.5. Actual 71.5
• 14:00 US FOMC Patrick Kaplan Speaks
• 19:50 Japanese Monetary Base. Estimate 17.2%
• 23:45 Japanese 10-y Bond Auction

Tuesday (October 3)

• 1:00 Japanese BoJ Core CPI
• 1:00 Japanese Consumer Confidence. Estimate 43.5

*All release times are GMT

*Key events are in bold

USD/JPY for Monday, October 2, 2017

USD/JPY October 2 at 10:55 EDT

Open: 112.64 High: 113.06 Low: 112.44 Close: 112.71

USD/JPY Technical

USD/JPY ticked higher in the Asian session. The pair was flat in the European session and has edged lower in North American trade

• 112.57 was tested earlier in support and is a weak line
• 113.55 is the next resistance line

Current range: 112.57 to 113.55

Further levels in both directions:

• Below: 112.57, 110.94, 110.10 and 108.69
• Above: 113.55, 114.49 and 115.50

OANDA’s Open Positions Ratios

In the Monday session, USD/JPY ratio is showing long positions with a majority (56%). This is indicative of trader bias towards USD/JPY breaking out and moving to higher ground.

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.