USD/JPY – Yen Falls as BOJ Stands Pat

The Japanese yen remains under pressure, as USD/JPY crossed above the 94 level in  Thursday’s Asian session. At an important policy meeting, the Bank of Japan made no adjustments to the benchmark interest rate or the size of its asset purchases. Japanese Leading Indicators came in as forecast. Japanese Leading Indicators was very close to the estimate. In the US, there are two major releases on Thursday – Trade Balance and Unemployment Claims.

In Japan, the BOJ had no surprises up its sleeve, and maintained interest rate and QE levels. The benchmark rate remained at <0.10%, while the size of the central bank’s asset purchase remained unchanged at JPY76 trillion. This policy meeting was the final one presided by governor Masaaki Shirakawa, who will be replaced by incoming governor Haruhiko Kuroda. The new governor is a proponent of strong monetary measures to kick-start the economy, and has suggested that the central bank consider purchasing more Japanese government bonds. Some analysts feel that this could cause a market bubble, with one expert warning that the BOJ’s options are limited, and that Kuroda will face a “wall of reality” when he takes the helm of the BOJ later this month. Regarding inflation, Kuroda said that the BOJ’s current policies were not strong enough to boost inflation to the government’s target of 2%. Kuroda suggested that the BOJ consider commencing its open-ended asset purchases before the scheduled start of 2014. He took pains to note that the BOJ is not targeting the yen, which has lost 12% of its value against the dollar in the past 3 months, much to the dismay and unease of Japan’s trading partners.

Later in the day, the ECB will announce its benchmark interest rate for the Eurozone. Most analysts are expecting the central bank to maintain the current level of 0.75%. The rate has not budged since July 2012, so a cut in the rate would likely send shock waves through the financial markets. At the same, time, weak growth and unemployment figures out of the Eurozone could lead to interest rate cuts later this year. There may be no change to the rated, but often it is the accompanying press conference, hosted by ECB head Mario Draghi, which is the highlight of the show. Draghi’s optimistic statements at recent press conferences were bullish for the euro, but with Eurozone numbers looking weak (with the exception of Germany), the markets may not like what they hear, and the euro could get hurt.

Recent US economic data has looked sharp, and has raised speculation that the Fed might wind up its current round of QE, which involves the purchase of $85 billion in assets each month. Although Fed Chair Bernard Bernanke and Vice-Chair Janet Yellen have recently declared that QE will continue, evidence of a stronger recovery would put pressure on the Fed to reconsider. If this week’s key employment data beats expectations, there will be more pressure on the Federal Reserve to wind down or at least modify its current stimulus package.

USD/JPY for Thursday, March 7, 2013

USD/JPY 94.18 H: 94.23 L: 93.79

The Japanese yen remains under pressure, and USD/JPY is again above the 94 level. The pair is facing resistance at 94.59, a line which has held firm since May 2010. Will USD/JPY put pressure on this formidable barrier? On the downside, 93.13 is providing support. This line has strengthened as the pair has pushed to higher levels.

• Current range: 93.14 to 94.59

Further levels in both directions:

• Below: 93.14, 92.53, 91.94, 91.30, 90.91 and 90.18
• Above: 94.59, 95.27, 96.02 and 97.52

OANDA’s Open Position Ratios

USD/JPY continues to show little change in Thursday trading. This lack of activity is reflected in the currency pair, as USD/JPY trades quietly just above the 94 level. The lull in the ratio is unlikely to continue much longer, and we can expect to see some movement. Traders should note that the ratio is close to an even split, indicating that sentiment is divided as to where USD/JPY goes from here – will it push towards the 95 line, or retract back to more familiar territory?

The yen has lost ground in the past couple of days, as USD/JPY is back above the 94 level. With the US releasing key employment numbers on Thursday and Friday, we could see some volatility from the pair before the trading week comes to a close.

USD/JPY Fundamentals

• 3:24 Bank of Japan Monetary Policy Statement
• 3:24 Bank of Japan Overnight Call Rate. Estimate <0.10%. Actual <0.10%
• 5:00 Japanese Overnight Call Rate. Estimate 96.2%. Actual 96.3%
• 7:32 Bank of Japan Press Conference
• 12:30 US Challenger Job Cuts
• 13:30 US Trade Balance. Estimate -42.8B.
• 13:30 US Unemployment Claims. Estimate 354K
• 13:30 US Revised Nonfarm Productivity. Estimate -1.6%
• 13:30 US Revised Unit Labor Costs. Estimate. 4.4%
• 15:30 US Natural Gas Storage. Estimate -135B
• 18:15 US FOMC Jerome Powell Speaks
• 20:00 US Consumer Credit. Estimate 15.2B
• 21:30 US Bank Stress Test Results

*Key releases are highlighted in bold

*All release times are GMT

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