USD/JPY – Talk of BoJ Easing Pushes Yen Downwards

USD/JPY has posted strong gains on Thursday, reversing the losses seen in the Wednesday session. The pair is trading at 109.20 at the start of the North American session. On the release front, Japan’s current account surplus improved to 1.89 trillion in April, very close to the estimate. In the US, today’s key release is Unemployment Claims. This release will be closely watched after last week’s very soft NFP report. The indicator is expected to rise slightly to 277 thousand. We’ll also hear from three FOMC members during the day. Friday is a data-heavy day, with the US publishing retail sales, inflation and consumer confidence reports.

Speculation has risen that the BoJ will adopt further easing in June or July, and USD/JPY has responded with sharp gains on Thursday. With the Japanese economy showing weak growth and the strong yen hurting exports, the BoJ is under strong pressure to adopt further easing measures. The BoJ has warned that it could intervene to curb the climb of the high-flying yen, but analysts say that the BoJ is unlikely to make any such moves until after the G7 meeting later in May, which is being hosted by Japan. Policymakers have tried to “talk down” the yen by warning that Japan will intervene in the currency markets, but this has not done much to push down the yen. Meanwhile, there was positive news as Japan’s current account surplus widened to 1.89 JPY trillion in March, just shy of the estimate of JPY 1.90 trillion. This was the highest surplus recorded since last March.

US employment indicators appear to be taking one step forward, one step backward. On Tuesday, JOLT Job Openings looked sharp in April, jumping to 5.76 million. This figure was much stronger than the estimate of 5.56 million. However, last week’s host of employment numbers were a mix, which predictably has raised concerns about the strength of the US labor market. Last week, Nonfarm Payrolls looked awful, as the key indicator slid to just 160 thousand, well short of the forecast of 203 thousand. This marked the lowest reading in seven months. On a brighter note, wages showed growth, as Average Hourly Earnings posted a second straight gain of 0.3%.

The markets are busy looking for clues as to what the Federal Reserve has planned next. In its April policy statement, the Fed stayed on the sidelines, but the message to the markets with regard to the US economy was one of cautious optimism. The statement noted continuing improvement in the labor market but added that it was keeping a watchful eye on low inflation levels. The Fed statement appeared to leave the open to a June rate hike, but last week’s soft payrolls report has put a damper on speculation about an imminent hike. Last week, New York Fed president William Dudley said he remains confident that the Fed could raise rates as much as twice this year, but many analysts are skeptical if the Fed will raise rates before 2017. The minutes of the April Fed meeting will be released next week, and any clues about a June hike could send the dollar higher against its rivals.Upcoming data, especially employment and inflation indicators, will be major factors as the Fed must decide whether to press the rate trigger in June.

USD/JPY Fundamentals

Wednesday (May 11)

• 19:50 Japanese Current Account. Estimate 1.90T. Actual 1.89T

Thursday (May 12)

• 1:00 Japanese Economy Watchers Sentiment. Estimate 44.9. Actual 43.5
• 8:30 US Unemployment Claims. Estimate 277K
• 8:30 US Import Prices. Estimate 0.6%
• 10:30 US Natural Gas Storage. Estimate 60B
• 11:00 US FOMC Member Loretta Mester Speaks
• 11:45 US FOMC Member Eric Rosengren Speaks
• 13:01 US 30-year Bond Auction
• 13:30 US Member Esther George Speaks
• 19:50 Japanese M2 Money Stock. Estimate 3.2%

Upcoming Key Events

Friday (May 13)

• 8:30 US Core Retail Sales. Estimate 0.3%
• 8:30 US PPI. Estimate 0.3%
• 8:30 US Retail Sales. Estimate -0.3%
• 10:00 US Preliminary UoM Consumer Sentiment. Estimate 89.9 points

*Key releases are highlighted in bold

*All release times are EDT

USD/JPY for Thursday, May 12, 2016

USD/JPY May 12 at 8:40 EDT

Open: 108.42 Low: 108.21 High: 109.40 Close: 109.23

USD/JPY Technical

• USD/JPY posted gains in the Asian and European sessions
• 108.37 has strengthened in support following gains by USD/JPY in the Thursday session
• There is resistance at 109.87
• Current range: 108.37 to 109.87

Further levels in both directions:

• Below: 108.37, 107.57, 106.19, and 105.18
•  Above: 109.87, 110.66 and 111.30

OANDA’s Open Positions Ratio

USD/JPY ratio is almost unchanged on Thursday. Long positions continue to command a strong majority (62%). This is indicative of strong trader bias towards USD/JPY continuing to move 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.