USD/JPY – Yen Jumps as Dollar Falls Below 110

The Japanese yen continues to rally this week. In the Wednesday’s North American session, USD/JPY is trading at 109.21, down 1.00% on the day. On the release front, Japan’s trade surplus narrowed to JPY 0.09 trillion, well off the estimate of JPY 0.27 trillion. This marked the smallest surplus since July 2016. Japanese Flash Manufacturing PMI edged higher to 54.3, close to the estimate of 54.4 points. In the US, Existing Home Sales disappointed, slowing to 5.57 million. This missed the forecast of 5.72 million. On Thursday, the US releases unemployment claims and New Home Sales.

The yen has extended the gains seen on Tuesday, as the dollar has dropped below 110 yen for the first time since mid-September of 2017. The Japanese currency continues to take advantage of broad dollar weakness, and has gained 3.0% in in January. With the markets showing negative sentiment over global equity markets, there has been increased demand for safe haven assets such as the yen. There was further pressure on the US dollar on Wednesday, after US Treasury  Secretary Steven Mnuchin, who is attending the World Economic Forum in Davos, noted that “obviously a weaker dollar is good for us as it relates to trade and opportunities”.

As expected, the Bank of Japan held interest rates in negative territory, at -0.10%. The monetary policy statement noted that the economy should continue to show modest expansion, and that the BoE would maintain current qualitative and quantitative monetary easing until consumer inflation hits the 2 percent target. Recently, there has been talk of the BoJ tightening its policy, given the rebound in the economy. However, BoJ Governor Kuroda has taken pains to reiterate that the Bank will not be changing its ultra-accommodative monetary policy anytime soon. In a quarterly review, the BoJ made no changes to its economic and inflation projections, and reiterated its forecast that inflation will reach the 2 percent target in the 2019-2020 fiscal year.

Dollars Decline Deepens as Equities Pull Back

The US government shutdown made the headlines for several days, but turned out to be little more than a nuisance, as the shutdown affected only one working day. On Monday, the Senate voted 266-150 to extend government funding until February 8. This stopgap measure will enable the government to provide services during that time, but the lawmakers will need to hammer out a longer-term agreement, as these short extensions are just band aid solutions. The Democrats held up a funding bill last week, in order to force the Republicans to the table over illegal immigration. The Republicans have promised to hold a vote on this issue, but many Democratic lawmakers remain skeptical that President Trump and the Republicans will deal in good faith over immigration.

The Bank of Japan policy is under pressure

USD/JPY Fundamentals

Tuesday (January 23)

• 18:50 Japanese Trade Balance. Estimate 0.27T. Actual 0.09T
• 19:30 Japanese Flash Manufacturing PMI. Estimate 54.3. Actual 54.4

Wednesday (January 24)

• 9:00 US HPI. Estimate 0.4%. Actual 0.4%
• 9:45 US Flash Manufacturing PMI. Estimate 55.2. Actual 55.3
• 9:45 US Flash Services PMI. Estimate 54.5. Actual 53.3
• 10:00 US Existing Home Sales. Estimate 5.72M. Actual 5.57M
• 10:30 US Crude Oil Inventories. Estimate -1.0M. Actual -1.1M

Thursday (January 25)

• 8:30 US Unemployment Claims. Estimate 236K
• 10:00 US New Home Sales. Estimate 676K

*All release times are GMT

*Key events are in bold

USD/JPY for Wednesday, January 24, 2018

USD/JPY January 24 at 10:30 EDT

Open: 110.30 High: 110.34 Low: 109.16 Close: 109.21

USD/JPY Technical

USD/JPY  continues to break through support levels. The pair has posted steady losses throughout the Wednesday session

• 109.61 was tested earlier in support and is a weak line. It could break during the North American session
• 110.10 has switched to a resistance line following sharp losses by USD/JPY

Current range: 109.11 to 110.10

Further levels in both directions:

• Below: 109.11, 108.21 and 107.29
• Above: 110.10, 111.53, 112.57 and 113.55

OANDA’s Open Positions Ratios

USD/JPY ratio is showing little movement this week. Currently, long positions have a majority (63%), indicative of trader bias towards USD/JPY continuing to move lower.

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.