USD/JPY – Yen Climbs to 3-Month High as Dollar Under Pressure

The Japanese yen has posted gains in the Thursday session, continuing the upward trend seen we’ve seen for most of the week. In North American trade, USD/JPY is trading at 106.36, down 0.60% on the day. On the release front, Japanese manufacturing reports were mixed. Core Machinery Orders plunged 11.9%, worse than the estimate of -1.9%. However, Revised Industrial Production bounced back with a strong gain of 2.9%, beating the forecast of 2.7%. This marked the strongest gain since April. In the US, PPI gained 0.4%, matching the forecast. Core PPI also gained 0.4%, beating the estimate of 0.2%. Both indicators rebounded after declines in the previous month. Unemployment Claims climbed to 230 thousand, just above the estimate of 229 thousand. On Friday, the US releases key housing and consumer confidence numbers.

The yen continues to roll, as the currency has climbed 2.2% this week. The safe-haven yen has received a boost from the turbulence in the markets, as the appetite for risk has waned. The yen is enjoying a stellar 2018, posting gains of 5.5% against the struggling US dollar. On Thursday, the Japanese currency climbed to its highest level since early November. The dollar was broadly lower, as investors reacted negatively to weak retail sales reports in the US. Retail Sales was flat at 0.0%, short of the estimate of 0.5%. Core Retail Sales declined 0.3%, well off the forecast of +0.2%.

All signs are pointing to Haruhiko Kuroda remaining at the helm of the Bank of Japan. Kuroda is about to complete his first 5-year term, and another term would represent a strong vote of confidence in Kuroda, especially because BoJ governors usually serve only one term. Kuroda has made it a priority to raise inflation, but this has proven a daunting task, as inflation is still short of the BoJ’s inflation target of 2%. In this period of strong volatility in the currency markets, Kuroda’s re-election may have a calming effect on the markets.

With US inflation indicators pointing higher in January, the Fed will be reevaluating its projection for rate hikes in 2018. Currently, the Fed is planning three hikes this year, but that could change to four, or even five hikes, if inflation continues to head upwards and the robust US economy maintains its strong expansion.  The new head of the Federal Reserve, Jerome Powell, received a rude welcome from the stock markets, as he started his new position last week. Powell sought to send a reassuring message on Tuesday, saying that the Fed is on alert to any risks to financial stability. However, it is clear that the Fed’s hand is limited when it comes to stock markets moves, and the volatility which we saw last week could resume at any time.

USD/JPY Fundamentals

Wednesday (February 14)

• 18:50 Japanese Core Machinery Orders. Estimate -1.9%. Actual -11.9%
• 23:30 Japanese Revised Industrial Production. Estimate 2.7%. Actual 2.9%

Thursday (February 15)

• 8:30 US PPI. Estimate 0.4%. Actual 0.4%
• 8:30 US Core PPI. Estimate 0.2%. Actual 0.4%
• 8:30 US Empire State Manufacturing Index. Estimate 17.7. Actual 13.1
• 8:30 US Philly Fed Manufacturing Index. Estimate 21.5. Actual 25.8
• 8:30 US Unemployment Claims. Estimate 229K. Actual 230K
• 9:15 US Capacity Utilization Rate. Estimate 78.0%
• 9:15 US Industrial Production. Estimate 0.2%
• 10:00 US NAHB Housing Market Index. Estimate 72
• 10:30 US Natural Gas Storage. Estimate -193B
• 16:00 US TIC Long-Term Purchases. Estimate 50.3B

Friday (February 16)

• 8:30 US Building Permits. Estimate 1.29M
• 8:30 US Housing Starts. Estimate 1.23M
• 8:30 US Import Prices. Estimate 0.6%
• 10:00 US Preliminary UoM Consumer Sentiment. Estimate 95.4

*All release times are EST

*Key events are in bold

USD/JPY for Thursday, February 15, 2018

USD/JPY February 15 at 9:15 EST

Open: 107.01 High: 107.01 Low: 106.18 Close: 106.36

USD/JPY Technical

USD/JPY posted losses in the Asian session. In European trade, the pair ticked lower but recovered. The pair continues to lose ground in North American trade

• 105.53 is providing support
• 106.64 has switched to a resistance role after losses by USD/JPY on Thursday. It is a weak line

Current range: 105.53 to 106.64

Further levels in both directions:

• Below: 105.53, 104.32 and 103.16
• Above: 106.64, 107.29, 108.00 and 109.11

OANDA’s Open Positions Ratios

USD/JPY ratio is showing small gains in short positions. Currently, long positions have a majority (69%), indicative of trader bias towards USD/JPY reversing directions and 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.