USD/JPY – Yen Steady, Markets Eye US Durables and Jobless Claims

USD/JPY is showing little movement on Thursday, as the pair trades at 112.70 in the European session. On the release front, there are two key releases on the schedule – Core Durable Goods Orders and Unemployment Claims. Japan will release inflation indicators, highlighted by Tokyo Core CPI. The markets are expecting a weak reading of -0.2%. On Friday, the US releases Final GDP, with the estimate standing at 1.0%.

Although the Bank of Japan took radical action and adopted negative interest rates in January, inflation remains anemic and the threat of deflation is a nightmarish scenario for policymakers. The recent BoJ minutes warned that inflation levels are unlikely to improve, and estimates for upcoming indicators are not promising. Tokyo CPI, a key indicator, will be released on Thursday, and the estimate stands at -0.2%, compared to the -0.1% reading a month earlier. The indicator has mustered just one gain since June 2015, underscoring a sluggish economy which has failed to generate any inflation. The Chinese slowdown and collapse in oil prices have exacerbated soft inflation levels. Although there is talk of the BoJ making some aggressive easing moves at its April policy meeting, it is questionable whether the BoJ has any monetary ammunition left, given that lowering rates into negative territory has had little effect on the economy. At the same time, if the upcoming inflation indicators are weak, there will be more pressure on the BoJ to make a move at its April meeting.

The US manufacturing sector has struggled, hurt by the global slowdown which has meant less demand for US-produced goods. Recent manufacturing readings have reflected a sector in deep trouble, so the markets were surprised as the Richmond Manufacturing Index surged in March. The indicator, which measures activity in the US Atlantic region, jumped to 22 points, its highest level since June 2010. We’ll get a look at additional manufacturing indicators on Thursday, with the release of US durable good reports.

Last week’s Federal Reserve policy statement appeared to pour cold water on any imminent rate hikes, but recent hawkish statements by Federal Reserve officials have surprised the markets and strengthened the US dollar. On Monday, John Williams, president of the San Francisco Fed, said that the Fed could raise rates in April and June, if economic conditions improve. Although the dot plot (an FOMC projection of rate hikes) was lowered at the March meeting, he insisted that the Fed had not changed its path of rate hikes. His comments were echoed by Atlanta Fed Dennis Lockhart, who also said that an April rate move was a clear possibility. Lockhart noted that the US economy was holding up well, despite weak global conditions. Lockart said that the economy was close to full employment and the Fed’s target of 2 percent inflation was attainable. There was further support for rate hikes from two other Fed presidents, Patrick Harker and James Bullard. Harker said that given the strong economy, the Fed should consider raising interest rates as early as the April meeting, and added that he favored at least three rate hikes during the year. On Wednesday, Bullard said that with the US unemployment rate at very low levels, the Fed could be forced to raise rates sooner rather than later. Given this flurry of statements, traders should treat an April move by the Fed as a reasonable possibility, with US employment and inflation numbers having a huge say on the Fed’s decision.

USD/JPY Fundamentals

Thursday (March 24)

• 8:15 US FOMC Member James Bullard Speaks
• 8:30 US Core Durable Goods Orders. Estimate -0.2%
• 8:30 US Unemployment Claims. Estimate 267K
• 8:30 US Durable Goods Orders. Estimate -3.0%
• 9:45 US Flash Services PMI. Estimate 51.3 points
• 10:30 US Natural Gas Storage. Estimate 20B
• 19:30 Japanese Tokyo Core CPI. Estimate -0.2%
• 19:30 Japanese National Core CPI. Estimate 0.1%
• 19:50 Japanese SPPI. Estimate 0.2%

Upcoming Key Events

Friday (March 25)

• 8:30 US Final GDP. Estimate 1.0%

*Key releases are highlighted in bold

*All release times are DST

USD/JPY for Thursday, March 24, 2016

USD/JPY March 24 at 7:30 DST

Open: 112.42 Low: 112.29 High: 113.01 Close: 112.70

USD/JPY Technical

• USD/JPY posted small gains in the Asian session but has reversed directions in European trade
• 112.48 was tested earlier in support and remains under pressure
• There is resistance at 113.86
• Current range: 112.48 to 113.86

Further levels in both directions:

• Below: 112.48, 111.50, 109.87 and 108.37
• Above: 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 (62%), indicative of strong trader bias towards the pair 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.