USD/JPY – Yen Edges Higher in Light Holiday Trade

USD/JPY has posted slight losses in Wednesday session. Currently, the pair is trading at 117.50. On the release front, today’s highlight is Existing Home Sales. The indicator is projected to drop to 5.52 million. In Japan, All Industries Activities remained unchanged at 0.2%, edging above the forecast of 0.1%. There are no Japanese events on Thursday, with markets closed for a holiday. Thursday promises to be busy, as the US releases three key events – Core Durable Goods Orders, Final GDP and unemployment claims.

As widely expected, the Bank of Japan held rates at -0.10%, where they have been pegged since January. BoJ Governor Haruhiko Kuroda sounded optimistic about the economy but also went out of his way to dampen any speculation that the BoJ was planning to raise rates in the near future. Kuroda was unconcerned about the yen’s sharp descent, stating that the weak Japanese currency has raised inflation by boosting import costs and that the BoJ would continue its program of “powerful monetary easing” as the bank tries to reach its goal of two percent inflation.

When the Federal Reserve raised interest rates in December 2015, the Fed confidently predicted a series of rate hikes in 2016 in order to keep a hot US economy in check. However, the Fed remained on the sidelines throughout 2016 and refrained from any rate hikes until last week. There were several false starts along the way, as expectations that the Fed would raise rates earlier in 2016 failed to materialize. This led to sharp criticism of Janet Yellen for failing to provide a clear monetary policy. Yellen seems to have been keenly aware of this, as the Fed did everything short of buying advertisements in daily newspapers to get out the message that it planned to raise rates in December. Indeed, a rate hike was priced in as high as 100% by some analysts. Yellen should certainly be commended for a clear message to the markets.

With the one rate hike in 2016 behind us, what’s next for Janet Yellen & Co.? In September, Fed officials said they expected two rate hikes in 2017, but the Fed is now projecting three or even four hikes next year. However, projections need to be adjusted to economic conditions, and the markets will understandably be somewhat skeptical about Fed rate forecasts. As well, the wild card of Donald Trump could also play a critical role in monetary policy. Trump’s economic platform remains sketchy, apart from declarations that he will increase government spending and cut taxes. Still, there is growing talk about ‘Trumpflation’, with the markets predicting that Trump’s policies will increase inflation levels, which have been persistently weak. If inflation levels do heat up, there will be pressure on the Fed to step in and raise interest rates.

USD/JPY Fundamentals

Tuesday (December 20)

• 23:30 Japanese All Industries Activities. Estimate 0.1%. Actual 0.2%

Wednesday (December 21)

• 10:00 US Existing Home Sales. Estimate 5.52M
• 10:30 US Crude Oil Inventories. Estimate -2.4M

Thursday (December 22)

• 8:30 US Core Durable Goods Orders. Estimate 0.2%
• 8:30 US Final GDP. Estimate 3.3%
• 8:30 US Unemployment Claims. Estimate 255K

*All release times are EST

*Key events are in bold

USD/JPY for Wednesday, December 21, 2016

USD/JPY December 21 at 6:40 EST

Open: 117.83 High: 118.07 Low: 117.39 Close: 117.48

USD/JPY Technical

• USD/JPY posted slight losses in the Asian session and has been flat in European trade
• 116.88 is providing support
• 118.05 was tested earlier in resistance. It is a fluid line
• Current range: 116.88 to 118.05

Further levels in both directions:

• Below: 116.88, 115.88 and 114.83
•  Above: 118.05, 118.85, 119.83 and 121.44

OANDA’s Open Positions Ratio

USD/JPY ratio remains unchanged this week. Currently, long positions have a majority (56%). This is indicative of 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.