USD/JPY – Yen Unchanged as Manufacturing PMI Close to Estimate

The Japanese yen continues to have a quiet week and remains close to the symbolic 100 level. Currently, USD/JPY is trading at 100.20. On the release front, it’s another light day. Japanese Flash Manufacturing PMI came in at 49.6 points, very close to the forecast. The US will release New Home Sales, with the indicator expected to drop to 575 thousand. Additional housing data will be released on Wednesday, with the publication of Existing Home Sales. The estimate for August stands at 5.55 million, little changed from the previous reading.

Japanese manufacturers remain pessimistic about the country’s manufacturing sector. In August, Flash Manufacturing PMI improved to 49.6 points, almost identical to the estimate of 49.5 points. However, the indicator has remained under the 50-point level (which separates contraction and expansion) since February, pointing to ongoing contraction in the industry. We’ll get another look at the mood of manufacturers next week, with the release of Final Manufacturing PMI. Meanwhile, the Japanese yen continues to trade at high levels. The round number of 100 has become a major headache for the government and the BoJ, as the strong yen is bad for exports and is impeding attempts to raise inflation levels. The hesitant BoJ has not taken any significant monetary measures in recent months, which has emboldened market players to continue pushing the dollar lower. If the bank continues to stay on the sidelines, the markets will conclude that the BoJ has given up on further monetary easing. If the yen continues to strengthen, Japanese policymakers are likely to issue warnings that they will intervene in the currency markets in order to halt the yen’s upward movement. At a recent G-7 meeting, the US and Japan became entangled in a public spat when Japan threatened unilateral currency intervention. This scenario could play itself out yet again if the yen continues to rise and breaks below the 100 level.

Central bank heads and other senior policy makers will meet at the annual summit in Jackson Hole, beginning on Thursday. The markets will be looking for hints from Federal Reserve chair Janet Yellen regarding the Fed’s monetary plans, particularly the timing a rate hike. FOMC members are expected to express their views ahead of the key meeting. Fed Vice Chairman Stanley Fischer took the opportunity and sounded upbeat about the US economy, saying that the Fed was close to its aims of a full labor market and the inflation target of 2 percent. The latter claim sounds a bit optimistic, considering that US inflation levels have consistently been closer to zero than the 2 percent level. It will be interesting to see if Janet Yellen follows suit and expresses satisfaction with current inflation levels.

Monday (August 22)

• 22:00 Japanese Flash Manufacturing PMI. Estimate 49.5. Actual 49.6

Tuesday (August 23)

• 00:00 BoJ Governor Haruhiko Kuroda Speaks
• 14:00 US New Home Sales. Estimate 575K
• 14:00 US Richmond Manufacturing Index. Estimate 6 points

Wednesday (August 24)

• 14:00 US Existing Home Sales. Estimate 5.55M

*Key events are in bold

*All release times are EDT

USD/JPY for Tuesday, August 23, 2016

USD/JPY August 23 at 6:40 EDT

Open: 100.27 High: 100.38  Low: 99.20 Close: 100.23

USD/JPY Technical

• USD/JPY has shown limited movement in the Asian and European sessions
• 99.71 is providing support
• 101.20 is a strong resistance line
• Current range: 99.71 to 101.20

Further levels in both directions:

• Below: 99.71, 98.95 and 97.78
•  Above: 101.20, 102.36, 103.73 and 104.99

OANDA’s Open Positions Ratio

USD/JPY ratio is unchanged on Tuesday, consistent with the lack of movement from USD/JPY. Currently, long positions have a strong majority (72%), indicative of trader bias towards USD/JPY breaking out and 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.