USD/JPY – Yen Yawns After Soft Japanese Inflation, Yellen Speech Next

The Japanese yen is showing little movement on Friday, continuing the lack of activity we’ve seen throughout the week. Currently, USD/JPY is trading at 100.40. On the release front, Tokyo Core CPI declined 0.4%, missing the estimate. It’s a busy day in the US, with the release of Preliminary GDP. This will be followed by a speech from Fed chair Janet Yellen at Jackson Hole. The week wraps up with the UoM Consumer Sentiment report.

Japan inflation continued to contract in August, as the economy continues to grapple with deflation. Inflation levels have failed to move upwards, despite the government’s Abenomics program and radical monetary easing by the Bank of Japan. The government unveiled an ambitious stimulus plan this summer, but even if successful, it will take time for inflation to gain traction. Tokyo Core CPI, the primary gauge of consumer spending, continued its losing ways with a decline of 0.4% in August, shy of the estimate of -0.3%. How low is low? Since May 2015, the indicator has managed just two gains, and both of those were a paltry 0.1%. National Core CPI posted a decline of -0.5%, short of the forecast of -0.4%. The news was better from BoJ Core CPI, which posted a gain of 0.5%. However, this was weaker than the previous release of 0.8%. The yen didn’t react to the weak inflation numbers, as it continues to trade close to the round 100 number. On the manufacturing front, Japanese manufacturers remain pessimistic. 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. Next week, we’ll get another look at the outlook of manufacturers, with the release of Final Manufacturing PMI.

The markets will be paying close attention to the Federal Reserve on Friday, but the venue will be in scenic Wyoming rather than busy Washington, D.C. Federal chair Janet Yellen will address the Jackson Hole economic summit, where central bankers and other senior policymakers are gathered to discuss economic and monetary policy. The markets will be looking for clues about the timing of a rate hike, and if Yellen delivers, we could see an immediate reaction from the markets. Federal policymakers are divided over a rate hike, as the US labor market is red-hot, but inflation levels remains very low. Yellen will address the conference shortly after the release of Preliminary GDP for the second quarter and the GDP deflator. In July, a soft Advance GDP sent the dollar downwards, as the economy expanded 1.2%, well short of the forecast of 2.6%. The estimate for the Preliminary GDP report stands at 1.1%. An unexpected reading could have a sharp impact on the currency markets, which have had a very quiet week so far.

Thursday (August 25)

• 19:30 Tokyo Core CPI. Estimate -0.3%. Actual -0.4%
• 19:30 National Core CPI. Estimate -0.4%. Actual -0.5%

Friday (August 26)

• 1:00 Japanese Core CPI. Actual 0.5%
• 8:30 US Preliminary GDP. Estimate 1.1%
• 8:30 US Goods Trade Balance. Estimate -62.3B
• 8:30 US Preliminary GDP Price Index. Estimate 2.2%
• 10:00 Federal Reserve Chair Janet Yellen Speaks
• 10:00 US Revised UoM Consumer Sentiment. Estimate 90.6
• 10:00 US Revised UoM Inflation Expectations
• All Day – Jackson Hole Symposium

*All release times are EDT

*Key events are in bold

USD/JPY for Friday, August 26, 2016

USD/JPY August 26 at 2:45 EDT

Open: 100.56 High: 100.57  Low: 100.57 Close: 100.42

USD/JPY Technical

• USD/JPY has shown limited movement in the Asian and European sessions
• 99.71 is providing support
• 101.20 remains 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 Friday, 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.

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