USD/JPY – Limited Losses as Yen Fights Back

The Japanese yen has opened the week with some gains against the US dollar. USD/JPY has dipped below the 98 line in Monday’s European session. USD/JPY was up sharply last week as the pair jumped more than 300 points. The dollar put on a show after US Federal Reserve head Bernard Bernanke stated that the Fed would likely begin to wind up the current QE program later in 2013. It’s a quiet start to the week, with only one release on Monday – Japanese Corporate Services Price Index. There are no US events on Monday.

The currency markets showed plenty of movement last week, reacting to comments from Federal Reserve chair Bernard Bernanke said that QE would likely be scaled down in 2013, and could be terminated in 2014, if the economy continues to improve. The Fed has put the markets on notice – if the US economy shows stronger growth and unemployment falls, expect the Fed to taper QE. It should be remembered that the Federal Reserve is not making any changes at present to QE, which involves bond purchases of $85 billion each month by the Fed. Bernanke’s comments boosted the dollar against the major currencies, including the yen, since scaling back QE is dollar-positive.

The Japanese government has implemented an ambitious monetary easing plan, but it appears too early to determine if it has been a success. There have been some signs of economic improvement, such as GDP and personal spending. The government is searching for ways to revive the lethargic Japanese economy, and is now touting a corporate tax cut as a possible option. Japan’s corporate tax rate is higher than most industrialized countries, at a hefty 36%. Lowering the rate would encourage foreign investors as well as Japanese companies to invest in the country. However, the government has been shy on specifics about this initiative, so we shouldn’t expect any dramatic changes in the short term.

Speaking in London last week, Japanese Prime Minister Shinzo Abe defended his government’s monetary policy of extreme easing. The government is hoping this policy will kick-start the stagnant Japanese economy and stamp out deflation. Abe has defined his aggressive economic policy as having three prongs: extreme monetary easing, fiscal stimulus, and pro-growth moves. However, deflation has proven to be a stubborn enemy and continues to hurt the economy. Japan’s trading partners are not happy with the sinking yen, which has hurt their export markets. Abe dismissed criticism that he is purposely pushing the yen lower, saying that Abenomics is a win-win for the global and Japanese economies. He noted that GDP in Q1 climbed 4.1%, which he argued is proof that the Japanese economy is showing improvement.

USD/JPY for Monday, June 24, 2013

USD/JPY 97.92 H: 98.39 L: 97.77

USD/JPY Technical

USD/JPY has moved lower in Monday trading, as the pair has dipped below the 98 line. The line of 97.18 continues to provide support. The next support level is at 96.03, protecting the 96 line. On the upside, there is plenty of room for the pair to move higher, with no major resistance until 98.94.

• Current range: 97.18 to 98.94

Further levels in both directions:

• Below: 97.18, 96.03, 94.91, 94.02, 92.73 and 91.62
• Above: 98.94, 99.57, 100.00 and 100.85

OANDA’s Open Positions Ratio

After a lull on Friday, USD/JPY ratio is pointing to movement towards long positions. This is not currently reflected in the movement of the pair, as the yen has reversed direction and posted modest gains against the dollar. Long positions make up most of the ratio, indicating a strong bias towards USD/JPY moving higher.

The dollar surged against the yen last week, but the pair has reversed direction and is moving downwards. Will the yen continue to post gains? With no major events until Tuesday, we could be in for a quiet day.

USD/JPY Fundamentals

• 23:50 Japanese CSPI. Estimate 0.1%.

*Key releases are highlighted in bold

*All release times are GMT

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.