USD/JPY – Yen Falters as Fed Hints Rate Hike Coming

The Japanese yen has posted small gains on Monday. Currently, USD/JPY is trading slightly above the 102 line. On the release front, the US will release the Core PCE Price Index and Personal Spending. In Japan, the focus is on consumer spending indicators, with the release of Household Spending and Retail Sales. On Tuesday, the US will release CB Consumer Confidence, a key indicator.

The yen was listless most of last week, but the currency dropped 120 points on Friday, as USD/JPY climbed close to the 102 level. The sharp drop was in response to Janet Yellen’s highly-anticipated speech on Friday at the Jackson Hole meeting of central bankers. The Fed chair was crystal clear in her remarks, saying the case for a rate increase had “strengthened in recent months”. Yellen noted that the economy was close to maximum employment, inflation was steady, and consumer spending remained solid. At the same time, Yellen did not provide any timeline on a rate hike nor did she spell out what the Fed wants to see before pressing the rate trigger. On Friday, Fed members Dennis Lockhart and Stanley Fischer both came out in favor of two rate hikes in 2016, and these comments helped the dollar record broad gains in the Friday session. Although the Fed has revived the possibility of a September hike, a December move is considered much more likely, with odds as high as 65% according to Goldman Sachs. However, given that any move by the Fed will be data-dependent, plenty can still happen before the Fed holds its policy meeting on September 21.

Japan inflation continued to contract in August, as the economy continues to grapple with deflation. Inflation levels have failed to move upwards, despite the government’s Abenomics program and radical monetary easing by the Bank of Japan. The government unveiled an ambitious stimulus plan this summer, but even if successful, it will take time for inflation to gain traction. Tokyo Core CPI, the primary gauge of consumer spending, continued its losing ways with a decline of 0.4% in August, shy of the estimate of -0.3%. How low is low? Since May 2015, the indicator has managed just two gains, and both of those were a paltry 0.1%. National Core CPI posted a decline of -0.5%, short of the forecast of -0.4%. The news was better from BoJ Core CPI, which posted a gain of 0.5%. However, this was weaker than the previous release of 0.8%. 

Monday (August 29)

• 8:30 US Core PCE Price Index. Estimate 0.1%
• 8:30 US Personal Spending. Estimate 0.3%
• 8:30 US Personal Income. Estimate 0.4%
• 19:30 Japanese Household Spending. Estimate -1.3%
• 19:30 Japanese Unemployment Rate. Estimate 3.1%
• 19:50 Japanese Retail Sales. Estimate -0.9%

Tuesday (August 30)

• 10:00 US CB Consumer Confidence. Estimate 97.2

*Key events are in bold

USD/JPY for Monday, August 29, 2016

USD/JPY August 29 at 7:45 EDT

Open: 101.92 High: 102.39  Low: 101.81 Close: 102.20

USD/JPY Technical

• USD/JPY posted slight gains in the Asian session and has showed limited movement in European trade
• 102.36 was tested in resistance earlier and could break in the North American session
• 101.20 is providing support
• Current range:101.20 to 102.36

Further levels in both directions:

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

OANDA’s Open Positions Ratio

USD/JPY ratio is showing little movement, consistent with the lack of movement from USD/JPY. Currently, long positions have a strong majority (71%), indicative of trader bias towards USD/JPY continuing to move to higher ground.

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