USD/JPY – Yen Hits 1-Week High as Greenback Under Pressure

The Japanese yen has posted losses on Friday, continuing the upward movement which marked the Thursday session. Currently, USD/JPY is trading at 112.80. The week wraps up on a quiet note. There are no Japanese events on Friday, and the sole US indicator is CB Leading Index, with an estimate of 0.5%.

The US economy continues to fire on all four cylinders, as underscored by solid economic data on Thursday. Unemployment claims were slightly higher at 239 thousand, but beat the forecast of 245 thousand. On the manufacturing front, the Philly Fed Manufacturing Index soared to 43.3 points, crushing the estimate of 18.5 points. This marked its highest level since 2011. Earlier in the week, the Empire State Manufacturing Index also climbed sharply, with a reading of 18.7, compared to the forecast of 7.2 points. The surprisingly strong data is welcome news from the manufacturing sector, which like other industrialized countries, has been battered by globalization. President Trump has promised to bring manufacturing jobs back to the US and invigorate the struggling sector. There was more good news from the inflation front, as PPI and CPI posted respectable gains of 0.6% in January, above their estimates.

Federal Reserve Chair Janet Yellen is in the enviable position of having to decide how the Fed should respond to a strong US economy. Earlier this week, she made her semi-annual appearance before Congress. In her testimony, Yellen was upbeat about the economy. She noted that inflation is moving towards the Fed’s 2 percent target, the labor market remains red-hot and consumer spending is strong. A rate hike appears to be just a question of time, as Yellen warned that “waiting too long to remove accommodation would be unwise”. If the US economy stays on track in 2017, analysts expect two or three small rate hikes. At the same time, the Fed needs to take into account the economic stance of the new administration, which remains unclear. President Trump has promised to outline a tax reform plan in a few weeks, but has left the Fed and the markets in the dark regarding economic policy. Barring an unexpected tailspin from the economy, the Fed is likely to raise rates in the first half of 2017.

The Japanese economy is showing improvement, with real GDP expanding one percent in 2016. The economy has recorded four consecutive quarters of growth and inflation continues to point upwards, although it remains well below the BoJ target of two percent. At the same time, the new Trump administration could pose a serious challenge for Japan. Trump has paraded the motto of “America first” and withdrew the US from the Trans-Pacific Partnership, a trade agreement in which Japan is a major partner. Trump has charged that Japan is manipulating its currency to gain an unfair trade advantage, and this disputed threatened to sour the recent meeting between Prime Minister Shinzo Abe and Trump in Washington. However, the potential crisis was quickly defused, as the two leaders agreed that their finance ministers would conduct bilateral talks to discuss currency policy. Abe has dodged a bullet for now, but if USD/JPY pushes above the 120 level, the war of words over exchange rates could be renewed. As well, Trump remains concerned about the huge US trade imbalance with Japan and will want to make changes in the US-Japan trade relationship. Japan is heavily dependent on its export sector, and any protectionist moves by the US, such as import taxes, could hurt the Japanese economy.

USD/JPY Fundamentals

Friday (February 17)

• 10:00 US CB Leading Index. Estimate 0.5%

*All release times are GMT

*Key events are in bold

USD/JPY for Friday, February 17, 2017

USD/JPY February 17 at 6:10 EST

Open: 113.31 High: 113.50 Low: 112.69 Close: 112.80

USD/JPY Technical

USD/JPY was flat in the Asian session and has posted losses in European trade

• 112.57 is providing weak support. It could be tested in the Friday session
• 113.80 is the next resistance line
• Current range: 112.57 to 113.80

Further levels in both directions:

• Below: 112.57, 110.94 and 109.77
•  Above: 113.80, 114.83, 115.90 and 116.70

OANDA’s Open Positions Ratio

USD/JPY ratio is unchanged in the Friday session. Currently, long positions have a majority (54%), indicative of trader bias towards USD/JPY reversing directions and moving upwards.

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.