USD/JPY – Yen Yawns in Thin Holiday Trade

USD/JPY is unchanged in the Thursday session. In North American trade, the pair is trading at 112.70. Japanese banks and stock exchanges are closed for a third straight day for a holiday. On the release front, US unemployment claims dropped to 238 thousand, beating the estimate of 246 thousand. On Friday, the US releases wage growth and nonfarm payrolls reports, so traders should be prepared for some movement from USD/JPY.

Japanese inflation remains weak, underscored by BoJ Core CPI, which posted a rare decline. A year ago, the indicator posted a solid gain of 1.1%, but since then consumer inflation has steadily weakened. The BoJ released its minutes from the March meeting last week, and policymakers focused on consumer inflation, which remains well below the central bank’s target of two percent. The minutes indicated that the BoJ is closely tracking 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 reverses direction and moves upwards.

As expected, the Federal Reserve stayed on the sidelines on Wednesday, holding the benchmark rate at 0.75 percent. The Fed rate statement was hawkish, as policymakers emphasized the positives and downplayed a soft first quarter. The statement noted that consumer spending remains strong and that inflation was “running close” to the Fed’s 2 percent target. The Fed’s message is clearly one of optimism, as the central bank remains on track to raise interest rates twice more in 2017. The Fed’s bullish statement immediately raised the likelihood of a rate hike at June meeting, which jumped to 74 percent after the statement, up from 63% before meeting. The Fed has two key goals which have been achieved, namely full employment and an inflation rate of 2%. One area of concern is the balance sheet, which stands at $4.5 trillion. The minutes of the March meeting stated that policymakers want to start reducing this figure before the end of 2017, and we could see another reference to the balance sheet in the April minutes.

USD/JPY Fundamentals

Thursday (May 4)

• 7:30 US Challenger Job Cuts. Actual -42.9%
• 8:30 US Unemployment Claims. Estimate 246K. Actual 238K
• 8:30 US Preliminary Nonfarm Productivity. Estimate 0.1%. Actual -0.6%
• 8:30 US Preliminary Unit Labor Costs. Estimate 2.5%. Actual 3.0%
• 8:30 US Trade Balance. Estimate -44.9B. Actual -43.7B
• 10:00 US Factory Orders. Estimate 0.6%. Actual 0.2%
• 10:30 US Natural Gas Storage. Estimate 61B

Friday (May 5)

• 8:30 US Average Hourly Earnings. Estimate 0.3%
• 8:30 US Nonfarm Employment Change. Estimate 194K
• 8:30 US Unemployment Rate. Estimate 4.6%

*All release times are GMT

*Key events are in bold

USD/JPY for Thursday, May 4, 2017

USD/JPY May 4 at 10:20 EST

Open: 112.76 High: 113.05 Low: 112.61 Close: 112.73

USD/JPY Technical

USD/JPY was flat in the Asian session. The pair edged higher in the European session but has retracted in the North American session

• 110.94 is providing support
• 112.57 is under pressure in resistance. It could be tested in the North American session
• 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 has posted slight gains in short positions. Currently, long positions have a majority (55%). This is indicative of trader bias towards USD/JPY breaking out and moving 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.