USD/JPY – Dollar Kicks off Week Above 121

The Japanese yen is flat on Monday, following strong gains at the end of last week. In the European session, the pair is trading at 121.40. On the release front, Japanese Final Manufacturing PMI came in at 52.3 points, very close to the estimate of 52.4 points. Later in the day, Japan will release Monetary Base. In the US, today’s key release is ISM Manufacturing PMI, with the markets expecting a reading of 48.6 points.

The Bank of Japan has not been in the financial headlines in recent months, but that all changed last week, as the central bank shocked the markets by adopting negative interest rates. BoJ Governor Haruhiko Kuroda has warned in recent weeks that the BoJ would step in with further monetary easing if necessary, and those market players who assumed that Kuroda was posturing were in for a rude surprise on Thursday. The BoJ has been largely unsuccessful at propping up inflation levels, and this has hampered the weak economy. Will this monetary move help matters? The ECB has implemented negative rates for some time, but inflation levels have not responded. The yen reacted sharply to the dramatic move as USD/JPY surged over 200 points on Friday and climbed to its highest levels since late December. Meanwhile, consumer and inflation numbers are mired at low levels. Household Spending posted a dismal reading of -4.4%, a third consecutive decline. Tokyo Core CPI came in at -0.1%, short of the forecast of +0.1%. This index, the primary Japanese inflation indicator, has not shown a gain above 0.1% since April 2015, underscoring the dismal inflation picture.

The recent Federal Reserve policy statement was cautious in tone, as policymakers noted that there are soft spots in the economy, such as consumer spending and exports. As expected, the Fed did not raise rates from the current level of 0.25%. The inflation picture remains problematic, with the Fed saying that inflation levels will remain low, and may not reach the target of 2.0% until 2018. At the same time, the Fed emphasized that the US labor market remains strong. Will we see another rate hike in March? The Fed probably cannot answer this question just yet, so the markets will have to show some patience. Given the Fed’s continuing concerns about a lack of inflation, it’s hard to foresee another rate hike in March absent a strong improvement in key US indicators. The manufacturing sector is another weak spot in the US economy, and this was underscored last week, as the December reports for durables were dismal. Durable Goods dropped 1.2%, while Core Durables plunged 5.1%, its weakest showing since August 2014. These poor numbers underscore ongoing weakness in the US manufacturing sector, which has not improved despite positive economic conditions. There was more disappointing news on the housing front last week, as Pending Home Sales posted a negligible gain of 0.1%, well off the estimate of 1.0%.

USD/JPY Fundamentals

Sunday (Jan. 31)

• Japanese Final Manufacturing PMI. Estimate 52.4 points. Actual 52.3 points

Monday (Feb. 1)

• 8:30 US Core PCE Price Index. Estimate 0.1%
• 8:30 US Personal Spending. Estimate 0.1%
• 8:30 US Personal Income. Estimate 0.2%
• 9:45 US Final Manufacturing PMI. Estimate 52.7 points
• 10:00 US ISM Manufacturing PMI. Estimate 48.6 points
• Tentative – US Loan Officer Survey
• 18:50 Japanese Monetary Base. Estimate 28.3%
• 22:45 Japanese 10-year Bond Auction

*Key releases are highlighted in bold

*All release times are EST

USD/JPY for Monday, February 1, 2016

USD/JPY February 1 at 6:55 EST

Open: 121.34 Low: 121.05 High: 121.44 Close: 121.37

USD/JPY Technical

• USD/JPY has been flat in the Asian and European sessions
• There is weak resistance at 121.50
• 120.40 is providing support
• Current range: 120.40 to 121.50

Further levels in both directions:

• Below: 120.40, 119.58, 118.53 and 116.88
• Above: 121.50, 122.40 and 123.67

OANDA’s Open Positions Ratio

USD/JPY ratio is showing little change, reflective of a lack of movement from the pair. Long positions continue to command a solid majority (61%), which is indicative of strong trader bias towards the pair moving higher.

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.