USD/JPY – Yen Rises as Japan Prepares Huge Stimulus Plan

The Japanese yen has reversed directions on Wednesday, posting considerable losses. USD/JPY is currently trading at 105.70. On the release front, there are no Japanese releases. In the US, the Federal Reserve will set the benchmark rate and issue a policy statement. As well, we’ll get a look at durable good orders and pending home sales.

There was positive news out of the US on Tuesday. CB Consumer Confidence dipped to 97.3 points in July, lower than the June reading of 98.0, but nonetheless another excellent release. New Home Sales followed suit, jumping to 592 thousand in June. This figure easily beat the forecast of 560 thousand. There was more good news from the manufacturing sector, as the Richmond Manufacturing Index surged, posting a reading of plus-10 points. This crushed the forecast of minus-4 points.

The Abe government is planning a significant fiscal spending package, but how big is big? On Wednesday, Abe announced a spending package of JPY 28 trillion, higher than the markets had expected. This report sent the yen lower. On Tuesday, a Nikkei report stated that the government would unveil a direct fiscal stimulus of about JPY 6 trillion yen over the next few years, pushing the Japanese currency higher. We can expect further volatility from USD/JPY as additional details about the fiscal package are released. The BoJ will issue a policy statement late Thursday, and it remains unclear if the bank will adopt further easing measures.

The Federal Reserve will be on center stage on Wednesday. The Fed is not expected to raise the current benchmark rate of 0.25%, so the markets will be paying close attention to the policy statement, looking for clues about a possible hike later in the year. The markets have priced in a 51% chance of a rate hike before the end of the year, but that could quickly dip if the Fed sends a dovish message to the markets. The previous policy statement preceded the Brexit vote by just a week, so it will be interesting to see what Fed policymakers have to say about the British decision to leave the European Union. Solid US numbers in the past few weeks has fueled speculation about a possible rate hike, although it’s extremely unlikely the Fed will make a move at the Wednesday meeting. Although the US economy is in good shape, the fly in the ointment is inflation, which remains stuck at low levels, well short of the Fed’s target of around 2 percent. Fed policymakers will be hesitant to raise rates if inflation is not projected to point upwards.

USD/JPY Fundamentals

Wednesday (July 27)

• 8:30 US Core Durable Goods Orders. Estimate 0.3%
• 8:30 US Durable Goods Orders. Estimate -1.1%
• 10:00 US Pending Home Sales .Estimate 1.9%
• 10:30 US Crude Oil Inventories. Estimate -2.1M
• 14:00 US FOMC Statement
• 14:00 US Federal Funds Rate. Estimate <0.50%

Upcoming Key Events

Thursday (July 28)

• 8:30 US Unemployment Claims. Estimate 261K
• 23:30 Japanese Tokyo Core CPI. Estimate -0.4%%
• 23:30 Japanese Retail Sales. Estimate -1.2%
• Tentative – BoJ Monetary Policy Statement

*Key events are in bold

*All release times are EDT

USD/JPY for Wednesday, July 27, 2016

USD/JPY July 27 at 8:10 EDT

Open: 104.84 High: 106.54  Low: 104.81 Close: 105.69

USD/JPY Technical

• USD/JPY has posted gains in the Asian and European sessions
• 104.99 has switched to support following gains by USD/JPY in the Wednesday session
• 105.87 was tested earlier in resistance and remains a fluid line
• Current range: 104.99 to 105.87

Further levels in both directions:

• Below: 104.99, 103.73, 102.36 and 101.20
•  Above: 105.87, 106.81 and 107.65

OANDA’s Open Positions Ratio

The USD/JPY ratio has shown gains in long positions. Currently, long positions have a majority (63%), indicative of trader bias towards USD/JPY continuing to move towards 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.