USD/JPY – Yen Continues to Struggle as Government Pressures BOJ

The Japanese yen continues to lose ground against the US dollar, and dropped to levels last seen in June 2012. USD/JPY is trading above the 89 level, after the Japanese government introduced a new stimulus package last week, and continues to put pressure on the Bank of Japan. In the US, the Trade Deficit hit its highest levels since last April, surprising the markets.

USD/JPY continues to trade at multi-month highs, after barreling above the 89 line on Friday. The yen is under strong pressure as the Japanese government unveiled its new stimulus package worth $224 billion. The government says the new program will kick-start the languishing Japanese economy and stimulate economic growth. The government is determined to stamp out deflation, which has been a long-term problem for the sluggish Japanese economy.

The prime minister reiterated that he wants the Bank of Japan to raise its inflation target to 2%. BOJ Governor Masaaki Shirakawa is due to finish his term in April and Prime Minister Shinzo Abe has declared that he is looking for a “bold policy leader” to replace him. In other words, someone who can be counted on to help implement Abe’s aggressive economic platform. Even prior to his election victory in December, Abe called on the BOJ to implement unlimited monetary easing and raise its inflation target from 1% to 2%. The new prime minister has even threatened to revoke the powerful central bank’s independence if it does not comply. The BOJ meets later in January, and is expected to agree to these demands. This will put even more pressure on the struggling Japanese currency.

In economic news, the US released Trade Balance numbers on Friday. The numbers caught the markets off guard, as the Trade Deficit ballooned last month, posting a deficit of $48.7 billion. This was way above the estimate of $41.1 billion, and represented the highest deficit levels since April. The figures indicate a strong demand for imports by US consumers, a sign of greater consumer spending. Increased consumer confidence and spending is a critical engine for economic growth, but whether the recovery has taken hold and the US economy is headed in the right direction is not at all certain.

There are worrying signs, with the staggering US debt still out of control and stubbornly high unemployment. There are no releases out of the US on Monday, but the markets will be all ears as Federal Reserve Chair Bernard Bernanke addresses a financial forum at the University of Michigan. Analysts hope to get some clues as to when the current round of QE might end. In Japan, there is a bank holiday on Monday. There is one Japanese release late Monday (Tuesday in Japan), M2 Money Stock. This indicator has been fairly steady in recent months, and posted a 2.1% gain in December. The markets are expecting an identical reading in the January release.

USD/JPY for Monday, January 14, 2013

USD/JPY Jan 14 at 11:40 GMT

89.31 H: 89.64 L: 89.23

USD/JPY Technical

USD/JPY edged higher in the Asian session, touching a high of 89.67, before consolidating at 89.39. The pair is steady in the European session, as it tests the 89.31 line on the downside. There is much stronger support at 88.55. On the upside, 89.85 continues to provide resistance, and is protecting the critical 90 level.

• Current range: 89.31 to 89.85.

Further levels in both directions:
• Below: 89.31, 88.55, 87.95, 87.36, 86.97, 86.37 and 86.
• Above: 89.85, 90.23, 90.91, 91.30 and 91.94.

OANDA’s Open Position Ratios

The USD/JPY ratio is currently showing a slight move in favor of short positions. Despite the pair trading at multi-month highs, the ratio remains close to an even split. The recent movement in the ratio could signal that the US dollar will lose some ground. This would mean that the critical 90 level, which is in sight, would gain a reprieve, at least for the time being.

Following the Japanese government’s new stimulus package, the yen continues to struggle. The Japanese currency continues to trade above the 89 line. With the Bank of Japan expected to introduce further easing, there is more room for the yen to continue to slide.

USD/JPY Fundamentals

• 1:20 US FOMC Member Charles Evan Speaks
• 21:00 US Fed Chairman Bernard Bernanke Speaks at University of Michigan in Ann Arbor
• 23:50 Japanese M2 Money Stock. Estimate 2.1%

*Key releases are highlighted in bold
*All release times are GMT

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