USD/JPY – Yen Ticks Higher in Thin Holiday Trade

USD/JPY is showing little movement in the Tuesday session. In North American trade, the pair is trading at 112.30. Japanese banks are closed for Constitution Day, so we’re unlikely to see much movement during the day. On the release front, the BoJ released the minutes of its March meeting. On the inflation front, BoJ Core CPI disappointed with a decline of 0.1%, short of the estimate of +0.2%. There are no major US events on the schedule. On Wednesday, the US releases two key indicators – ADP Nonfarm Payrolls and ISM Non-Manufacturing PMI. Japanese banks will be closed for holidays for three days this week, so key US events, such as Nonfarm Payrolls, will have a magnified impact on the movement of USD/JPY.

The Bank of Japan continues to hold the course with its monetary policy, and there were no surprises from the minutes of the BoJ’s March policy meeting. Policymakers focused on consumer inflation, which remains well below the central bank’s target of two percent. The minutes indicated that the BoJ will closely track consumer prices, but in the meantime will continue with its quantitative easing scheme, in which the central bank purchases JPY 80 trillion per year. The BoJ’s prescription for curing weak inflation is to continue its ultra-accommodative monetary policy, so we’re unlikely to see policymakers contemplate tightening policy unless inflation moves to much higher levels.

The Trump administration marked its first 100 days in office on the weekend, but there’s little arguing that it’s been a rocky start for the controversial president. Trump’s popularity is at record lows for a new president, but he managed to avoid the embarrassment of a government shutdown, as lawmakers reached an agreement on the weekend. The short-term spending deal, which has bipartisan support, provides funding for government services until September 30th. The deal does not include any funding for a border wall with Mexico, marking a clear concession on the part of Trump. The White House is hoping that this small victory will be the prelude to more cooperation between the Republicans and Democrats on Capitol Hill, as Trump will need some support from the Democrats in order to pass tax reform legislation, one of Trump’s major campaign planks.

The US economy appears to have hit some turbulence, as underscored by a disappointing Advance GDP for the first quarter, released on Friday. The economy expanded at just 0.7%, well below the forecast of 1.3%. Consumer indicators have also been softer than expected. On Friday, Revised UoM Consumer Sentiment came in at 97.0, short of the estimate of 98.1 points. This echoed the CB Consumer Confidence report earlier in the week, which also missed expectations. Consumer spending is also raising concerns, and Personal Spending dipped to 0.0% in March, the first time the indicator hasn’t posted a gain since July 2016. Key employment data, highlighted by Nonfarm Payrolls, will be released on Friday. If these indicators miss expectations, the US dollar could suffer broad losses.

USD/JPY Fundamentals

Monday (May 1)

• 19:50 BoJ Monetary Policy Meetings Minutes

Tuesday (May 2)

• 1:00 BoJ Core CPI. Estimate 0.2%. Actual -0.1%
• All Day – US Total Vehicle Sales. Estimate 17.1M

Wednesday (May 3)

• 8:15 US ADP Nonfarm Employment Change. Estimate 178K
• 10:00 ISM Non-Manufacturing PMI. Estimate 56.1
• 14:00 US FOMC Statement
• 14:00 US Federal Funds Rate. <1.00%

*All release times are GMT

*Key events are in bold

USD/JPY for Tuesday, May 2, 2017

USD/JPY May 2 at 6:20 EST

Open: 111.82 High: 112.30 Low: 111.81 Close: 112.27

USD/JPY Technical

USD/JPY has edged higher in the Asian and European sessions.

• 110.94 is providing support
• 112.57 is the next line of resistance
• Current range: 110.94 to 112.57

Further levels in both directions:

• Below: 110.94, 109.77, 108.54 and 107.49
•  Above: 112.57, 113.55 and 114.96

OANDA’s Open Positions Ratio

USD/JPY ratio is unchanged this week. Currently, long positions have a majority (58%). This is indicative of trader bias towards USD/JPY  continuing to move higher.

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.