USD/JPY – Yen Listless, Markets Eye Manufacturing and Job Data

The Japanese yen remains subdued, as USD/JPY trades slightly below the 114 line in the European session. In economic news, the Japanese trade surplus improved to 0.12 trillion yen. Later in the day, Japan releases All Industries Activity. The US will release two key indicators – the Philly Fed Manufacturing Index and Unemployment Claims. On Friday, the US will publish CPI, the most important inflation indicator. The markets are expecting a weak reading of -0.1%.

It’s not a pretty picture in Japan, as Japanese fundamentals continue to point to a limping economy, hobbled by weak growth and low inflation. The week started badly, as Preliminary Japanese GDP  for the fourth quarter posted a decline of 0.4%. The Chinese slowdown has taken a big bite out of the Japanese economy, as China is one of Japan’s major trading partners. To make matters worse, Japanese consumer spending has fallen off, hurting growth and raising the specter of deflation, which would be a nightmarish scenario for policymakers. Despite all the gloom and doom, the Japanese yen has not only held its own against the strong US dollar, but posted a superb rally. The secret to the yen’s recent success? The Japanese currency has benefited from its traditional safe-haven status, as global financial instability has driven investors away from risk assets towards safer waters like the yen. However, the recent stampede to safety will not last indefinitely, and the recent shock move by the BOJ of adopting negative rates underscores the malaise gripping the Japanese economy. Given these backdrop, there is growing speculation that the BOJ will take further monetary action at its next policy meeting in March.

The Federal Reserve released the minutes of its January policy meeting on Wednesday. At that meeting, the Fed held rates at 0.25%, after raising rates in December for the first time in almost 10 years. The minutes reiterated the central bank’s concern that turmoil in global markets could have negative repercussions for the US economy. Policymakers sent out a broad hint that a rate hike is unlikely in March, as they discussed “altering their earlier views of the appropriate path for the target range for the federal funds rate”. This could have a negative impact on the US dollar, as investors may look elsewhere to park funds if US rates are not moving higher anytime soon. Federal Reserve chair Janet Yellen said last week that the Fed still planned to raise rates later in 2016, and this was reiterated on Wednesday by FOMC member Neel Kashkari, who said that a March rate hike was on the table, provided that the economy improved and inflation firmed. Still, a growing number of market players are skeptical that the Fed will make any moves before next year. Back in the heady days of December, the Fed hinted at a series of rate hikes during 2016, but the turmoil in the financial markets and the downturn in the US economy in 2016 has quickly dampened expectations of a rate move.

USD/JPY Fundamentals

Wednesday (Feb. 17)

• 18:50 Japanese Trade Balance. Estimate 0.06T. Actual 0.12T

Thursday (Feb. 18)

• 8:30 US Philly Fed Manufacturing Index. Estimate -2.9 points
• 8:30 US Unemployment Claims. Estimate 275K
• 10:00 US CB Leading Index. Estimate -0.1%
• 10:30 US Natural Gas Storage. Estimate -154B
• 11:00 US Crude Oil Inventories. Estimate 3.2M
• 23:30 Japanese All Industries Activity. Estimate -0.3%

Upcoming Key Events

Friday (Feb. 19)

• 8:30 US CPI. Estimate -0.1%
• 8:30 US Core CPI. Estimate +0.2%

*Key releases are highlighted in bold

*All release times are EST

USD/JPY for Thursday, February 18, 2016

USD/JPY February 18 at 6:45 EST

Open: 114.29 Low: 113.62 High: 114.31 Close: 113.89

USD/JPY Technical

• USD/JPY posted losses early in the Asian session and has leveled off in European trade
• 113.86 remains busy and is a weak support line. It was tested earlier in the day
• There is resistance at 114.65
• Current range: 113.86 to 114.65

Further levels in both directions:

• Below: 113.86, 112.48, 111.50 and 109.87
• Above: 114.65, 115.90 and 116.88

OANDA’s Open Positions Ratio

USD/JPY ratio is unchanged, consistent with the lack of movement we’re seeing from USD/JPY. Long positions retain a strong majority (59%). This is indicative of strong trader bias towards the pair 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.