USD/JPY – Yen Jumps as BoJ Stays Pat, US GDP Disappoints

The Japanese yen has posted strong gains on Friday. In the North American session, USD/JPY is trading at 102.80. On the release front, Japanese consumer inflation and consumer spending indicators disappointed. Tokyo Core CPI posted a decline of 0.4%, while Retail Sales dropped 2.2%. The Bank of Japan surprised the markets as it did not lower interest rates at its policy meeting. The yen continues to improve following a soft GDP report in the US on Friday. Advanced GDP for the second quarter climbed 1.2%, much weaker than the forecast of 2.6%. Later in the day, we’ll get a look at a key consumer confidence indicator, with the release of UoM Consumer Sentiment. The markets are braced for the indicator to dip to 90.2 points.

Japanese releases were dismal on Thursday. Tokyo Core CPI, the most important Japanese inflation indicator, declined 0.4%, matching the forecast. This marked the seventh straight decline, as inflation levels continue to struggle in negative territory. There was no relief from consumer spending indicators, as Retail Sales and Household Spending both posted sharp declines and missed their estimates. Household Spending plunged 2.2%, while Retail Sales, the primary gauge of consumer spending, slipped 1.2%. These figures point to a sullen Japanese consumer holding tight to the purse strings, which is bad news for the struggling economy. 

The Bank of Japan had little to say at its policy meeting on Thursday, opting to remain on the sidelines and not utilize its key monetary tools. The bank did not cut interest rates or expand its asset-purchase program, which stands at JPY/80 billion/mth. The bank did throw the markets a bone, announcing an increase to its ETF (exchange traded funds) program by 2.7 trillion yen ($26 billion) a year. However, the BoJ’s failure to take more aggressive moves in order to kick-start the listless Japanese economy surprised the markets, and the yen responded with gains as high as 2 percent following the policy statement announcement. One item of interest in the statement was the bank’s intention to implement a comprehensive review of its policy framework due to “considerable uncertainty” over inflation, which has remains at much lower levels than projected by the BoJ. Meanwhile, the guessing game about the size of the government’s spending package appears to be over, as Prime Minister Abe announced a package of JPY 28 trillion earlier in the week. The markets had expected a smaller program of about JPY 20 trillion yen, and the yen lost ground following Abe’s announcement. We could see further volatility from USD/JPY as additional details about the spending package are released. 

There were no dramatic moves by the Federal Reserve, which concluded its policy meeting on Wednesday. The bank continued to hold the course on interest rates, maintaining levels at 0.25% in a 9-1 vote. The Fed statement sounded upbeat, saying that risks to the economy have receded and the employment market is getting tighter. The Fed added that it continues to monitor inflation levels and noted that the housing sector had improved. Will the Fed make a move and raise rates in September? It appears that the Fed could go either way, and policymakers will make a decision at the September meeting based on the strength of US data.

USD/JPY Fundamentals

Thursday (July 28)

• 19:30 Japanese Household Spending. Estimate -0.4%. Actual -2.2%
• 19:30 Japanese Tokyo Core CPI. Estimate -0.4%. Actual -0.4%
• 19:30 Japanese National Core CPI. Estimate -0.4%. Actual -0.5%
• 19:30 Japanese Unemployment Rate. Estimate 3.1%. Actual 3.2%
• 19:50 Japanese Retail Sales. Estimate -1.2%. Actual -1.4%
• 19:50 Japanese Preliminary Industrial Production. Estimate 0.6%. Actual 1.9%
• 23:44 BoJ Outlook Report
• 23:44 BoJ Monetary Policy Statement

Friday (July 29)

• 1:00 BoJ Core CPI. Estimate 0.7%. Actual 0.8%
• 1:00 Japanese Housing Starts. Estimate -2.8%. Actual -2.5%
• 2:30 BoJ Press Conference
• 8:30 US Advance GDP. Estimate 2.6%. Actual 1.2%
• 8:30 US Advance GDP Price Index. Estimate 1.9%. Actual 2.2%.
• 8:30 US Employment Cost Index. Estimate 0.6%. Actual 0.6%
• 9:45 US Chicago PMI. Estimate 54.3. Actual
• 10:00 US Revised UoM Consumer Sentiment. Estimate 90.2
• 10:00 US Revised UoM Inflation Expectations

*Key events are in bold

*All release times are EDT

USD/JPY for Friday, July 29, 2016

USD/JPY July 29 at 8:50 EDT

Open: 104.83 High: 105.46  Low: 102.65 Close: 102.83

USD/JPY Technical

• USD/JPY posted sharp losses in the Asian session. The pair has shown limited movement in the European session
• 104.99 is a strong resistance line
• 103.73 was tested earlier and is a weak support level. It could see further action in the Friday session
• Current range: 103.73 to 104.99

Further levels in both directions:

• Below: 102.36, 101.20 and 99.71
•  Above: 103.73, 104.99, 105.87 and 106.81

OANDA’s Open Positions Ratio

The USD/JPY ratio has shown slight movement towards long positions. Currently, long positions have a majority (62%), indicative of trader bias towards USD/JPY reversing directions and moving to higher ground.

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.