USD/JPY – Yen Gains Continue As US Shutdown Looms

The yen continues to make inroads against the US dollar. In Monday’s European session the pair is trading in the mid-97 range. The Japanese currency has gained about 150 points since Thursday.  As we start the new trading week, all eyes are on Congress as a deadlock over the budget threatens to close down the US government. In economic news, Japanese Retail Sales posted strong gains, but Preliminary Industrial Production declined. Later on Monday, we will get a look at Housing Starts and the important Tankan Indexes. In the US, Monday’s sole release is Chicago PMI, with the markets expecting the index to rise in August.

On Monday, Japanese releases were mixed. Retail Sales, the most important consumer spending indicator, bounded back from a -0.3% decline in July and posted a strong gain of 1.1% in August, matching the forecast. It was the opposite path for Preliminary Industrial Production, which dropped by 0.7% in July, compared to an excellent gain of 3.2% in August. In other news, Manufacturing PMI remained steady at 52.5 points, while Housing Starts dropped to a four-month low, with a gain of 8.8%.

After years of deflation which have hobbled the Japanese economy, we continue to see signs of inflationary trends, as the economy responds to the government’s aggressive economic platform. On Thursday, National Core CPI continued to rise, posting a gain of 0.8%. This beat the estimate of 0.7%. Tokyo Core CPI was not as strong, dropping from 0.4% to 0.2% in August. However, the reading was close to the estimate of 0.3%. Earlier in the week, the Corporate Services Price Index rose 0.6% in August, edging out the estimate of 0.5%. These indicators has been posting releases below zero for years, but recent readings indicate that the economy is moving closer to the BOJ’s goal of reaching 2.0% annual inflation.

It’s crunch time in Washington, as the US government will find itself without funds to operate if Congress fails to break the budget impasse on September 30, the last day of the current financial year. If that happens, non-essential government services would be forced to shut down. This last happened in 1996, and politicians on both sides of the divide will be trying to hammer out an agreement so that the government can keep operating. Both sides seem entrenched in their positions. Republicans want to defund Obamacare before they approve a budget, and the Democrats are determined to protect their health care bill. This crisis, which would likely affect the currency markets, could be a dress rehearsal for a much more serious crisis, which will occur in two weeks if Congress doesn’t raise the debt ceiling. Meanwhile, the safe-haven yen is taking advantage of the current budget impasse as nervous investors worry about the US dollar continuing to drop if the crisis lingers.

USD/JPY for Monday, September 30, 2013

USD/JPY September 30 at 13:10 GMT

USD/JPY 97.72 H: 98.05 L: 97.50

USD/JPY Technical

• USD/JPY continues to lose ground in Monday trading. The pair dropped below the 0.98 line late in the Asian session.
• The pair is facing resistance at 97.83. This is followed by resistance at 98.43.
• On the downside, USD/JPY is receiving support at 97.18. Given the strong gains we are seeing from the yen, this line cannot be considered safe. There is followed by the round number of 96.00.
• Current range: 97.18 to 97.83

Further levels in both directions:

• Below: 97.18, 96.00, 95.06 and 94.20
• Above: 97.83, 98.43, 99.45, 100, 100.85 and 101.66

OANDA’s Open Positions Ratio

USD/JPY ratio is pointing to upward movement in Monday trading. This is not reflective of what we are currently seeing from the pair, as the yen continues to improve at the expense of the US dollar.

The yen continues to show strength, and is back in 97 territory. We could see some volatility from the pair later today, if the US budget crisis is not resolved. As well, the Japanese Tankan Indexes, which will be released late on Monday, could affect the movement of USD/JPY.

USD/JPY Fundamentals

• 5:00 Japanese Housing Starts. Estimate 12.9%. Actual 8.8%.
• 13:45 US Chicago PMI. Estimate 54.5 points.
• 23:30 Japanese Household Spending. Estimate 0.2%.
• 23:30 Japanese Unemployment Rate. Estimate 3.8%.
• 23:50 Japanese Tankan Manufacturing Index. Estimate 7 points.
• 23:50 Japanese Tankan Non-Manufacturing Index. Estimate 14 points.

*Key releases are highlighted in bold

*All release times are GMT

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