Yen stops bleeding on strong data

The Japanese yen is holding steady in the Wednesday session. Currently, USD/JPY is trading at 106.11, up 0.06% on the day.

Dollar takes pause at 106

It has been a rough week for the Japanese yen, which has lost 1.0 per cent. USD/JPY is particularly sensitive to US/Japan rate differentials, and this week’s rise in US 10-year and 30-year yields has boosted the pair. The dollar pushed the yen above the 106 level on Tuesday, for the first time since September 2020. The pair is on an uptrend and if US yields remain at current levels, the pair could put pressure on the 107 level in the coming sessions.

Japan reported solid gains in exports and machinery orders. The export sector has improved as global demand for Japanese exports has increased. Exports rose 6.4% from a year earlier, its sharpest gain in 27 months. As well, this marked a second successive gain. The catalyst for the sharp gain was increased demand from China, which surged 37.5 per cent.  The Chinese economy continues to rebound, and many factories in China are closed during the Lunar New Year, which led to an increase in Japanese exports to the Asian giant. On the manufacturing front, Core Machinery Orders for December climbed 5.2%, a third straight gain. The strong gain defied the projections, as the street consensus stood at -6.1%.

Investors will be keeping a close eye on US retail sales and the FOMC minutes. Headline retail sales and core retail sales are both expected to rebound in January with strong gains of 1.1%, after posting declines a month earlier. The FOMC minutes are not expected to rattle the currency markets, but if the policymakers stray from the ultra-dovish script, we could see some movement from the US dollar.

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USD/JPY Technical Analysis

• USD/JPY is putting pressure on resistance at 106.26. The next resistance line is at 106.85
• There is support at 104.33, followed by a support line at 103.74
• The 50-day moving average (MA) is situated at 104.09

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