USD/JPY – Slight Gains for Yen on Lukewarm US Releases

USD/JPY has posted slight losses on Wednesday, as the pair trades at 119.20 in the North American session.  In the US, inflation levels remain listless, as PPI posted a decline of 0.5%, missing expectations. Retail sales numbers were mixed, as Retail Sales posted a gain of 0.2%, while Core Retail Sales declined 0.1%. There are no Japanese releases on Wednesday. Traders should keep a close eye on Thursday’s key releases out of the US, highlighted by CPI.

US numbers on Wednesday were a mix. Retail Sales was up 0.2%, while Core Retail Sales posted a slight decline of 0.1%. Both readings were within expectations. The news was not good on the inflation front, as PPI, the principal gauge of inflation in the manufacturing sector, declined by 0.5% in September, its weakest showing since February. We’ll get another look at inflation indicators on Thursday, with the release of CPI. The markets are keeping expectations low, with an estimate of -0.2%. The estimate for Core CPI stands at +0.2%, so we could be in for a mixed bag, just as we saw with retail sales numbers on Wednesday.

Federal Reserve policymakers are strongly divided on the question of a rate hike in 2015. This was underscored on Monday by FOMC member Lael Brainard, who stated that the Fed should not raise rates before global economic conditions improve. Brainard noted that the Chinese slowdown has caused economic turmoil worldwide, and the US economy could lose steam due to weaker exports and weak global economic conditions. Clearly, Brainard is of the view that the Fed should take its time and proceed with caution. With global economic conditions unlikely to change anytime soon, a rate move may be on hold unless the US posts some key releases, such as GDP or employment numbers, which match or beat expectations.

A very different view was put forth on Monday by another FOMC member, Dennis Lockhart. Lockhart, considered a centrist on monetary policy, sounded more optimistic about a rate hike before the end of 2015. Lockhart did not rule out a rate hike in October, and added that the Fed would have more data to evaluate before its December policy meeting. With FOMC members sending out such conflicting messages, it is no wonder that the markets have been unable to get a handle on the timing of a rate hike, and this failure of the Fed to communicate a clear message to the Fed has hurt the US dollar, as we saw after the release of the Fed minutes last week.

The Bank of Japan released its policy meeting statement last week, and there were no surprises from the central bank. The BOJ said it would continue its current level of asset purchases (about $50 billion/mth) and noted that the Japanese economy continues to “recover moderately”. At the same time, the BOJ acknowledged that the Japanese economy has slowed down due to weak domestic activity and lower demand for Japanese exports. So far, the BOJ has managed to avoid expanding an already huge monetary stimulus program, but with inflation under the 1% level, which is a far cry from the government target of 2%, the BOJ may have to act in the near future if the economy doesn’t pick up at a faster pace. This monetary divergence between the BOJ and the Federal Reserve will likely continue to weigh on the yen.

USD/JPY Fundamentals

Wednesday (Oct. 14)

• 12:30 US Core Retail Sales. Estimate -0.1%.
• 12:30 US PPI. Estimate -0.2%.
• 12:30 US Retail Sales. Estimate 0.2%.
• 12:30 US Core PPI. Estimate 0.1%.
• 14:00 US Business Inventories. Estimate 0.1%.
• 18:00 US Beige Book.

Upcoming Key Events

Thursday (Oct. 15)

• 12:30 US CPI. Estimate -0.2%.
• 12:30 US Core CPI. Estimate 0.1%.
• 12:30 US Unemployment Claims. Estimate 269K.
• 14:00 US Philly Fed Manufacturing Index. Estimate -1.8 points.

USD/JPY for Wednesday, October 14, 2015

USD/JPY October 14 at 16:15 GMT

USD/JPY 119.18 H: 119.76 L: 119.07

USD/JPY Technical

• USD/JPY was steady in the Asian session, and has posted modest losses in the European and North American sessions.
• 118.53 is a weak support level.
• 120.40 is an immediate resistance line.
• Current range: 118.53 to 120.40

Further levels in both directions:

• Below: 118.53, 116.90, 115.90 and 113.86
• Above: 120.40, 121.50, 122.40 and 123.50

OANDA’s Open Positions Ratio

USD/JPY ratio has a solid majority of long positions (62%), indicative of trader bias towards the US dollar reversing directions 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.