USD/JPY – Japanese Yen Improves, Shrugs Off Sharp US Numbers

The Japanese yen has posted gains in the Thursday session, after little movement on Wednesday. In North American trade, USD/JPY is trading at 109.37, down 0.42% on the day. On the release front, unemployment claims edged up to 211 thousand, easily beating the estimate of 225 thousand. In the services sector, ISM Non-Manufacturing PMI dropped for a third straight month, coming in at 56.8 points, above the estimate of 56.1 points. There are no Japanese events, as Japan is closed for a holiday. On Friday, the focus is on US employment data, with the release of wage growth, nonfarm payrolls and the unemployment rate.

As expected, the Federal Reserve maintained the benchmark rate at a target of 1.5% to 1.75% on Wednesday. The rate statement was significant, with policymakers noting that “overall inflation has moved closer to 2 percent”. This was more hawkish than the March statement, which said that inflation indicators “have continued to run below 2 percent”. With inflation moving closer to the Fed target of 2 percent, there is a stronger likelihood that the Fed will upgrade its rate projection from three to four hikes in 2018. The odds of a fourth rate hike this year stand at 50%. The Fed rate statement also noted that “market-based measures of inflation compensation remain low”, a reference to soft wage growth, which is at 2.7%, lower than the 3% rate that the Fed would like to see.

Japan’s economic recovery has been impressive, as the economy has expanded for eight consecutive quarters, its longest streak since the 1980s. At the same time, the economy experienced a slowdown in the first quarter of 2018. Annualized growth in Q4 stood at 1.6% but stands to drop sharply in Q1, with an estimate of just 0.5%. One factor in the slowdown is a significant drop in exports, due to the stronger Japanese currency. The yen has gained about 3% against the dollar in 2018, hurting the competitiveness of Japanese exports.  The Japanese consumer, however, remains pessimistic, and the April reading of 43.6 marked an 8-month low.

The US Dollar is the market’s darling

U.S Dollar’s Deja Vu

USD/JPY Fundamentals

Thursday (May 3)

• 7:30 US Challenger Job Cuts. Actual -1.4%
• 8:30 US Preliminary Nonfarm Productivity. Estimate 0.9%. Actual 0.7%
• 8:30 US Preliminary Unit Labor Costs. Estimate 3.1%. Actual 2.7%
• 8:30 US Trade Balance. Estimate -50.0B. Actual -49.0B
• 8:30 US Unemployment Claims. Estimate 225K. Actual 211K
• 9:45 US Final Services PMI. Estimate 54.4. Actual 54.6
• 10:00 US ISM Non-Manufacturing PMI. Estimate 58.1. Actual 56.8
• 10:00 US Factory Orders. Estimate 1.3%. Actual 1.6%
• 10:30 US Natural Gas Storage. Estimate 47B

Friday (May 4)

• 8:30 US Average Hourly Earnings. Estimate 0.2%
• 8:30 US Nonfarm Employment Change. Estimate 189K
• 8:30 US Unemployment Rate. Estimate 4.0%

*All release times are DST

*Key events are in bold

USD/JPY for Thursday, May 3, 2018

USD/JPY May 3 at 10:30 DST

Open: 109.83 High: 109.91 Low: 109.15 Close: 109.37

USD/JPY Technical

USD/JPY has edged lower in the Asian and European sessions. The pair is steady in North American trade

• 108.89 is providing support
• 110.11 is the next 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 showing slight movement towards long positions in the Thursday session. Currently, long positions have a majority (62%), indicative of trader bias towards USD/JPY reversing directions and heading lower.

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.