USD/JPY – Yen Edges Lower Ahead of Fed Minutes

The Japanese yen has recorded small losses in Wednesday session. In the North American session, USD/JPY is trading at 100.40. On the release front, today’s highlight is the FOMC minutes from the Fed’s July policy meeting. Later in the day, Japan releases Trade Balance, with the surplus expected to slip to JPY 0.14 trillion. On Thursday, the US will release two key events – Philly Fed Manufacturing Index and Unemployment Claims.

The Japanese economy continues to sputter, and Preliminary GDP posted a flat reading of 0.0% in the second quarter, shy of the forecast of 0.2%. In annualized terms, GDP posted a small gain of 0.2%. The weak reading will put further on pressure on Prime Minister Abe to resuscitate the languishing Japanese economy. Abe recently unveiled a JPY 28 trillion stimulus package, but it will be a tough job to convince skeptical consumers to open their wallets and increase spending. The BoJ has not taken any significant monetary measures in recent months and will face close scrutiny in September, when it releases an assessment of its stimulus program. If the bank continues to stay on the sidelines, the markets will conclude that the BoJ has given up on further monetary easing, leaving room for the yen gain further ground. The dollar dropped below the symbolic 100 yen level on Tuesday, the yen’s highest level since June 24.

US inflation numbers remain very weak, a persistent sore point in a generally strong US economy. The lack of inflation was underscored on Tuesday by consumer inflation reports for July. CPI posted a weak reading of 0.0%, its worst showing in five months. Core CPI dropped to 0.1%, shy of the estimate of 0.2%. Wednesday’s highlight is the Federal Reserve minutes, which will provide details of the Fed’s July policy meeting. However, the minutes could prove to be a non-event, since there have been a host of key releases since the July meeting. Problem is, the data is pointing in all directions, making it a tricky task to try and figure out when the Fed might raise interest rates. After a soft GDP report in late July, nonfarm payrolls was stellar. However, this was followed by weak retail sales and CPI reports. Bottom line? A September hike is virtually off the table, while the odds of a December hike are pegged at 50/50. However, Fed policymakers will be hesitant to raise rates if key indicators, particularly inflation levels, remain close to zero.

USD/JPY Fundamentals

Wednesday (August 17)

• 10:30 US Crude Oil Inventories. Estimate 0.3M. Actual -2.5M
• 13:00 FOMC Member James Bullard Speaks
• 14:00 US FOMC Meeting Minutes
• 19:50 Japanese Trade Balance. Estimate 0.14T

Thursday (August 18)

• 8:30 US Philly Fed Manufacturing Index. Estimate 1.4
• 8:30 US Unemployment Claims. Estimate 269K

*Key events are in bold

*All release times are EDT

USD/JPY for Wednesday, August 17, 2016

USD/JPY August 17 at 10:30 EDT

Open: 100.16 High: 101.16  Low: 100.16 Close: 100.40

USD/JPY Technical

• USD/JPY posted strong gains in the Asian session but has recorded slight losses in European trade. The pair continues to lose ground in North American trade.
• 99.71 is providing support
• There is resistance at 101.20
• Current range: 99.71 to 101.20

Further levels in both directions:

• Below: 99.71, 98.95 and 97.78
•  Above: 101.20, 102.36, 103.73 and 104.99

OANDA’s Open Positions Ratio

In the USD/JPY ratio, long positions have a strong majority (68%), indicative of trader bias towards USD/JPY continuing to move to higher ground.

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.