USD/JPY – Yen Edges Higher as Japanese Trade Surplus Beats Estimate

USD/JPY has edged lower in the Wednesday session. Currently, the pair is trading at 113.60. On the release front, Japan’s trade surplus came in at JPY 0.36 trillion, beating the estimate. In the US, there are no major events on the schedule. On Thursday, the US releases two key indicators – Unemployment Claims and New Home Sales. Japan will release SPPI later in the day.

Japan’s trade surplus dropped in December to JPY 0.36 trillion, marking a 3-month low. However, this reading easily beat the forecast of JPY 0.22 trillion. Earlier in the week, there was good news on the manufacturing front. Flash Manufacturing PMI continues to indicate expansion as it rose to 52.8 in January, above expectations. One of the weak spots in the Japanese economy is inflation, which continues to flounder at low levels. Tokyo Core CPI, which will be released on Thursday, 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 and Japan again warns about intervention, it could lead to some nastiness between Japan and the US.

USD/JPY Fundamentals

Tuesday (January 24)

• 18:50 Japanese Trade Balance. Estimate 0.22T. Actual 0.36T

Wednesday (January 25)

• 9:00 US HPI. Estimate 0.4%
• 10:30 US Crude Oil Inventories. Estimate 1.5M

Upcoming Key Releases

Thursday (January 26)

• 8:30 US Unemployment Claims. Estimate 247K
• 10:00 US New Home Sales. Estimate 585K
• 18:30 Japanese Tokyo Core CPI. Estimate -0.4%

*All release times are GMT

*Key events are in bold

USD/JPY for Wednesday, January 25, 2017

USD/JPY January 25 at 7:00 EST

Open: 113.86 High: 113.99 Low: 113.37 Close: 113.55

USD/JPY Technical

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

• 112.57 is providing support
• 113.80 remains a weak resistance line
• Current range: 112.57 to 113.80

Further levels in both directions:

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

OANDA’s Open Positions Ratio

USD/JPY ratio is showing little change in the Wednesday session. Currently, long and short positions are close to evenly split, indicative of a lack of trader bias as to which direction USD/JPY will take next.

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.