USD/JPY – Japanese Yen Dips Despite Soft US Inflation Reports

After showing little movement early in the week, the yen has lost ground in the Wednesday session. In North American trade, USD/JPY is trading at 109.77, up 0.56% on the day. On the release front, the Bank of Japan releases the summary of opinion from the April policy meeting. As well, Japan’s current account surplus is expected to rise to JPY 1.62 trillion. In the US, PPI dropped to 0.1%, shy of the estimate of 0.2%. Core PPI edged lower to 0.2%, matching the forecast. On Thursday, the US will publish consumer inflation reports.

US President Trump dropped a bombshell on Tuesday, announcing that the US would withdraw from the Iran nuclear deal. However, the currency markets are not showing much movement in response to the speech. The Japanese yen has lost ground on Wednesday, as demand for safe-haven assets remained muted. In his televised remarks, Trump blasted the agreement and said that the US would reimpose stiff sanctions on Iran. However, Britain, France and Germany have said they plan to remain in the deal, and will be holding a high-level meeting with Iranian leaders on how the agreement can be salvaged. With the US acknowledging that the White House does not have a ‘Plan B’, it’s unclear what happens next. Meanwhile, tensions between Israel and Iran are at a fever pitch, and any confrontation between the two could shake up the markets.

Japanese consumer spending disappointed in March, according to a key indicator. Household Spending declined 0.2%, underscoring sluggish domestic demand and a pessimistic Japanese consumer. Although the employment market is very tight, consumers continue to hold tight to the purse strings, as companies have been reluctant to raise wages. However, Bank of Japan policymakers appear more confident in the Japanese economy, as the minutes from the March meeting were upbeat. The minutes said that the economy, as well as inflation, are likely to continue on an upward trend. Will the bank’s summary of opinions also be optimistic? The bank has long sought to reach an inflation target of around 2 percent, and if policymakers are correct and this goal is on its way to being achieved, the BoJ will be able to contemplate a reduction in its stimulus program, a move which could have a substantial impact on the yen. However, the cautious BoJ is likely to stick to current policy well into 2019, even if economic conditions improve and inflation moves closer to target.

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USD/JPY Fundamentals

Wednesday (May 9)

• 1:03 Japanese Leading Indicators. Estimate 105.2%. Actual 105.0%
• 8:30 US PPI. Estimate 0.2%. Actual 0.1%
• 8:30 US Core PPI. Estimate 0.2%. Actual 0.2%
• 10:00 US Final Wholesale Inventories. Estimate 0.6%. Actual 0.3%
• 10:30 US Crude Oil Inventories. Estimate -0.2M
• 13:01 US 10-year Bond Auction
• 19:50 BoJ Summary of  Opinions
• 19:50 Japanese Bank Lending. Estimate 1.9%
• 19:50 Japanese Current Account. Estimate 1.62T

Thursday (May 10)

• 8:30 US CPI. Estimate 0.3%
• 8:30 US Core CPI. Estimate 0.2%
• 8:30 US Unemployment Claims. Estimate 219K

*All release times are DST

*Key events are in bold

USD/JPY for Wednesday, May 9, 2018

USD/JPY May 9 at 10:40 DST

Open: 109.13 High: 109.83 Low: 109.00 Close: 109.75

USD/JPY Technical

USD/JPY edged higher in the Asian session and posted stronger gains in the European session. The pair is steady in North American trade

• 108.89 was tested earlier in support and remains a weak line
• 110.11 is a weak resistance line

Further levels in both directions:

• Below: 108.89, 108.00, 107.29 and 106.64
• Above: 110.11, 111.22 and 112.06
• Current range: 108.89 to 110.11

OANDA’s Open Positions Ratios

USD/JPY ratio is unchanged in the Wednesday session. Currently, long positions have a majority (59%), 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.