USD/JPY – Yen Improves, Flirts With 120

USD/JPY is steady on Friday, as the yen trades at 120.30 in the European session. In economic news, US markets are closed for the Christmas Day holiday. Japanese markets are open, and there were two minor indicators on the schedule. BOJ Core CPI remained steady at 1.2%, while BOJ Housing Starts improved to 1.7%.

The yen has shown some marked improvement in December, making up for a poor November performance against the US dollar. USD/JPY has dropped some 300 points this month, and touched the symbolic level of 120.00 earlier on Friday, its lowest level since October 28. The Bank of Japan has been under strong pressure to expand its easing program, given the lackluster performance of the Japanese economy, which has been hit hard by the twin blows of weak global demand for Japanese goods and sluggish domestic economic activity. Despite the sluggish economy, the BOJ has been very reluctant to further expand easing, and did not make any changes to monetary base easing of JPY 80 trillion annually. However, the BOJ did make some adjustments to monetary policy at its December policy meeting, announcing that it would purchase 300 billion yen of ETF’s annually, as well as extend the average duration of Japanese government bond purchases to 7-12 years, up from 7-10 years, commencing in 2016. The BOJ kept a low profile over the move, which BOJ Governor Haruhiko Kuroda described as “tinkering”. Given current economic conditions, the BOJ may have to make more significant monetary moves early in the new year, and this could send the Japanese yen to lower levels.

There were a host of US releases on Wednesday, with mixed results. Durable Goods reports were unimpressive, underscoring weakness in the US manufacturing sector. Core Durable Goods slipped by 0.1%, short of the forecast of a 0.1% gain. Durable Goods came in at 0.0%, but this beat the estimate of -0.6%. Housing numbers also disappointed, as New Home Sales dipped to 490 thousand, well off the estimate of 507 thousand. This reading comes on the heels of Existing Home Sales, which posted a weak reading of 4.76 million, its worst performance since April 2014. There was some good news from consumer indicators, as the UoM Consumer Sentiment improved to 92.6 points, above the forecast of 92.1 points and marking a 4-month high.

In one of the most important economic events in 2015, the US Federal Reserve raised interest rates by 0.25 percent, the first rate hike since June 2006. The Fed got the rate ball rolling back in October, when it surprised the markets when it released a statement that it was seriously considering raising rates. Predictably, this caused a buzz in the markets about the Fed’s plans, as speculation earlier in the year about a rate hike failed to materialize. To the credit of Fed chief Janet Yellen and her colleagues, the Fed put into place a carefully-crafted strategy, sending a steady of stream of signals that it was intending to tighten monetary policy, if economic conditions remained positive. This gave the markets ample time to price in a rate hike, and currency market volatility was not excessive after the US rate hike, the first in almost 10 years. Although a hike of 0.25 percent is expected to have limited economic impact, the Fed move has given the US economy a critical vote of confidence, and this will be duly noted by the global markets. As well, this move is expected to be the first in a series of incremental rate hikes over the course of 2016, and higher interest rates means that the US dollar will become even more attractive to investors, at the expense of the greenback’s rivals like the Japanese yen.

USD/JPY Fundamentals

Friday (Dec. 25)

• 5:00 BOJ Core CPI
• 5:00 BOJ Housing Starts

*Key releases are highlighted in bold

*All release times are GMT

USD/JPY for Friday, December 25, 2015

USD/JPY December 25 at 11:00 GMT

USD/JPY 120.31 H: 120.00 L: 120.43

USD/JPY Technical

• USD/JPY has been uneventful in the Asian and European sessions
• There is resistance at 121.50
• 118.53 is providing support
• Current range: 118.53 to 120.40

Further levels in both directions:

• Below: 118.53, 116.88 and 115.45
• Above: 120.40, 121.50, 122.40, and 123.74

OANDA’s Open Positions Ratio

In the USD/JPY ratio, long positions continue to command a solid majority (68%), which is indicative of strong trader bias towards the pair moving higher.

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.