USD/JPY – Yen Dips as Soft Japanese Surplus Expected

USD/JPY has posted slight gains on Tuesday. Currently, the pair is trading at 113.40. On the release front, Japanese Flash Manufacturing PMI improved to 52.8, beating the forecast of 52.3. In the US, today’s highlight is Existing Home Sales, with the markets bracing for a dip in the December reading. Later in the day, Japan will release its trade balance, which is expected to drop sharply to JPY 0.22 trillion, compared to JPY 0.54 trillion in the previous release.

The Japanese manufacturing sector continues to show improvement. With just one exception, Flash Manufacturing PMI has improved each release since April 2016, as the index is pointing to slight expansion in manufacturing. Inflation, the Achilles heel of the economy, continues to flounder at low levels, and we’ll get an update on Thursday, with the release of Tokyo Core CPI. The index is expected to show a decline of -0.4%.

Donald Trump has just started his new job as president, but already, US economic policy may be undergoing a significant shift. On Monday, Trump signed an executive order formally withdrawing the US from the Trans-Pacific Partnership, a broad trade agreement which the US had signed but not ratified. Trump had promised to leave the TPP during the election, arguing that the deal would hurt American workers. Japan is a major member of the TPP and will no doubt be unhappy about the US decision. Trump’s protectionist moves could hurt the Japanese economy, which is heavily reliant on its export sector. Will Japan choose to retaliate, possibly starting a trade war with the US? Tension in trade relations between the two countries could also weigh on the wobbly Japanese yen. How low could the yen go? The BoJ has been reluctant to step in and prop up the currency, but the markets believe that the bank will not let the yen fall below the 125 level, which has been labeled the “Kuroda line”. In early 2016, when the yen was trading close to the 124 line, Japanese officials warned against what they termed “currency manipulations” and threatened to intervene in order to boost the yen’s value. This led to a public backlash from US officials as fears of a currency war escalated. If the yen continues to weaken, we could see a war of words escalate between the US and Japan.

USD/JPY Fundamentals

Monday (January 23)

• 19:30 Japanese Flash Manufacturing PMI. Estimate 52.3. Actual 52.8

Tuesday (January 24)

• 9:45 US Flash Manufacturing PMI. Estimate 54.6
• 10:00 US Existing Home Sales. Estimate 5.54M
• 10:00 US Richmond Manufacturing Index. Estimate 7
• 18:50 Japanese Trade Balance. Estimate 0.22T

*All release times are GMT

*Key events are in bold

USD/JPY for Tuesday, January 24, 2017

USD/JPY January 24 at 6:30 EST

Open: 112.78 High: 113.47 Low: 112.55 Close: 113.42

USD/JPY Technical

USD/JPY has edged higher in the Asian and European sessions

• 112.57 is providing support
• 113.80 is a weak resistance line

Further levels in both directions:

• Below: 112.57, 110.94 and 109.85
•  Above: 113.80, 114.83, 115.90 and 116.88
• Current range: 112.57 to 113.80

OANDA’s Open Positions Ratio

USD/JPY ratio is showing little change in the Tuesday session. Currently, long positions have a slight majority (53%), indicative of slight trader bias towards USD/JPY continuing to move 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.