USD/JPY – Yen Quiet Ahead of Tankan Reports

USD/JPY is showing marginal movement on Thursday, as the pair trades at 112.40 in the European session. Earlier in the day, USD/JPY broke just below the 112 level. In economic news, Japanese Housing Starts posted a huge gain of 7.8%, crushing the estimate of -2.2%. It was the indicator’s best showing in five months. Later in the day, Japan releases the Tankan indices, key gauges of the health of the services and manufacturing sectors. Traders should pay close attention to these indicators, as unexpected readings could have a strong impact on the direction of USD/JPY. Over in the US, today’s highlight is Unemployment Claims.

The Japanese yen posted solid gains on Tuesday, after Janet Yellen surprised the markets with a surprisingly dovish speech in New York. In the days leading up to the speech, a number of Federal Reserve officials had called for a raise in interest rates as early as April, but the Fed chair poured cold water on any rate hike enthusiasm. Yellen served notice that the Fed would continue its cautious approach towards monetary tightening, given the turbulent global economy and risks due to the Chinese slowdown. Yellen downplayed higher inflation levels, which in January reached 1.7 percent, the highest in almost two years. This reading is not far from the Fed’s target of 2.0 percent and some Fed members have gone on record saying that the Fed should raise rates before inflation pushes above the 2.0 percent threshold. At the same time, Yellen acknowledged that there were encouraging signs in the US economy, including a strong labor market. Will Yellen’s cautious assessment be reinforced or challenged by her Fed colleagues? New York Fed president William Dudley will address a meeting in Lexington, Virginia on Thursday, and the markets will be listening carefully for any response to Yellen’s comments.

The Japanese economy continues to struggle, and weak global growth and softness in neighboring China has taken a big bite out of the Japanese export sector. Domestic demand has also fallen, and the situation will not improve unless Japanese consumers open their wallet strings and start spending more. Earlier this week, Japanese consumer spending indicators were mixed. Retail Sales broke a nasty streak of three consecutive declines, posting a gain of 0.5 percent in February. However, this was well short of the estimate of 1.6 percent. There was better news from Household Spending, which posted a strong gain of 1.2 percent, after five consecutive declines. The BoJ remains under pressure to make a move at the April policy meeting, although it’s questionable whether the BoJ has any remaining monetary tools that would be effective. The central bank adopted negative rates in January, shocking the markets, but this has done little to breathe life into the economy or raise anemic inflation levels.

USD/JPY Fundamentals

Thursday (March 31)

• 1:00 Japanese Housing Starts. Estimate -2.2%. Actual +7.8%
• 7:30 US Challenger Job Cuts
• 8:30 US Unemployment Claims. Estimate 266K
• 9:45 US Chicago PMI. Estimate 50.5
• 10:30 US Natural Gas Storage. Estimate -20B
• 17:00 US FOMC Member William Dudley Speaks
• 19:50 Tankan Manufacturing Index. Estimate 8 points
• 19:50 Tankan Non-Manufacturing Index. Estimate 24 points

Upcoming Key Events

Friday (April 1)

• 12:30 US Average Hourly Earnings. Estimate 0.2%.
• 12:30 US Nonfarm Employment Change. Estimate 206K
• 12:30 US Unemployment Rate. Estimate 4.9% 

*Key releases are highlighted in bold

*All release times are DST

USD/JPY for Thursday, March 31, 2016

USD/JPY March 31 at 8:50 DST

Open: 112.38 Low: 112.15 High: 112.66 Close: 112.35

USD/JPY Technical

• USD/JPY has been steady in the Asian and European sessions
• 112.48 remains busy and has switched to a resistance role. It is a weak line
• 111.50 is providing support
• Current range: 111.50 to 112.48

Further levels in both directions:

• Below: 111.50, 109.87 and 108.37
• Above: 112.48, 113.86, 114.65 and 115.59

OANDA’s Open Positions Ratio

USD/JPY ratio remains almost unchanged this week. Long positions command a strong majority (59%), indicative of strong trader bias towards the pair reversing directions and moving to higher levels.

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.