USD/JPY – Markets Keep Close Tabs on Bank of Japan

The Japanese yen has shown improvement, dropping back below the critical 90 level in Monday trading. The pair was trading in the mid-89 range. All eyes are on the Bank of Japan, which meets for a policy meeting on Tuesday. The BOJ is expected to announce further monetary easing measures. There are no Japanese releases on Monday, and the US markets will be closed for Martin Luther King Day.

There are no economic releases out of either Japan or the US on Monday, but the markets will be full of anticipation ahead of a key Bank of Japan policy meeting on Tuesday. The BOJ will be huddled for two days, and the outcome could have a major impact on USD/JPY, which has been flirting with the 90 level. The central bank is widely expected to take additional easing steps, and to double its inflation target to 2%. This would bring it in line with the government’s inflation stance. Prime Minister Shinzo wants to kick-start the sluggish Japanese economy, and has targeted deflation, which has been a long-term problem. He has put strong pressure on the BOJ to fall into line with the government’s aggressive economic platform, and is expected to appoint a new BOJ governor who can be counted on to comply with the government’s agenda.

The US continues to send out mixed messages in its economic releases, making it difficult to evaluate the extent of the US recovery. Housing and Employment numbers looked excellent, hitting multi-year highs. The good news, however, was tempered by manufacturing and consumer confidence data. The  Philly Fed Manufacturing Index surprised the markets with a very sharp drop, and fell back into negative territory. Coming on the heels of the Empire Manufacturing Index, which also looked dismal, these indicators point to significant contraction in the US manufacturing sector, which is weighing on the fragile economic recovery. Last week wrapped up with Preliminary UoM Consumer Sentiment, which had its worst performance in a year. The indicator dropped to 71.3 points, well below the forecast of 75.1 points. Consumer spending and confidence is a critical component of economic growth, and these numbers will have to improve significantly if the US recovery is to gain traction.

USD/JPY for Monday, January 21, 2013

USD/JPY 89.48  H: 90.18 L: 89.34

In Monday trading, USD/JPY continues to show volatility. In the Asian session ,the pair hit a high of 90.24, and then broke below the 90 line, consolidating at 89.59. The pair is steady in the European session. The line of 89.85 has already seen activity today, and could continue to do so. On the downside, 89.31 continues to provide support, but this line could be tested if the current downward trend continues.

• 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

USD/JPY is showing some movement, in the direction of short positions. This activity is reflected in the current downward trend, as the yen has been improving and has pushed to the mid-89 range. Further movement in the ratio in this directions would be an indication that trader sentiment expects the yen to continue to improve against the US dollar.

The pair shows no sign of taking a break, as the fluctuations continue. We can expect further volatility as the markets anxiously await the BOJ’s policy meeting meeeting on Tuesday. The BOJ is widely expected to announce more monetary easing, but it remains unclear how much of this has been factored in by the markets. We could be in for some surprises on Tuesday.

USD/JPY Fundamentals

• There are no scheduled releases out of Japan or the US on Monday.

*Key releases are highlighted in bold

*All release times are GMT

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