USD/JPY – Yen Gains Continue after Optimistic BOJ Minutes

The Japanese yen continues to post gains against the retreating US dollar. USD/JPY has dipped below the 95 line in Friday’s European session. The yen got a boost from the BOJ Monetary Policy Meeting Minutes, which was positive about the prospects of the Japanese economy. In the US, retail sales and unemployment numbers looked sharp on Thursday. On Friday, the US releases two key events – PPI and UoM Consumer Sentiment. There are no Japanese releases on Friday.

The BOJ released the minutes from its most recent policy meeting, and the central bank was optimistic in tone, noting that the economy has improved. On the topic of deflation, several members said that it may be difficult to reach the target of 2% annual inflation, as deflation has proven a stubborn enemy. Meanwhile, the recent volatility on the Nikkei has bolstered the yen. The Japanese stock market has lost 20% of its value since late May, making it a bear market. Japanese equities have slumped as the BOJ has failed to address the volatility in the bond market. The yen has thus risen sharply as nervous investors have dump their stocks and flock to the safety of the Japanese currency. USD/JPY has dropped about 400 points this week.

There was some good news for the US earlier this week, as the S&P ratings agency revised the US sovereign credit rating from negative to stable. This is an important vote of confidence in the US economy, and means that there is less than a 1 in 3 chance of another downgrade in the next two years. S&P noted that a key factor in its revision was the agreement reached in the US Congress which averted the fiscal cliff crisis, which would have led to $600 billion in automatic tax increases and spending cuts and could have pushed the fragile US economy into recession. In 2011, S&P cut the US credit rating from AAA to AA, and the threat of another downgrade has been a concern of the markets. This development will likely improve market sentiment and could give a boost to the US dollar.

The S&P decision could also affect the US Federal Reserve’s QE program, which involves the purchase of $85 billion in assets each month. The Fed has said that it won’t scale back the program before it sees a stronger economy and an improving employment picture. Although US releases continue to be mixed, speculation is rising that the Fed could take action in the next few months. Since QE is US dollar-negative, any tapering of QE could give a boost to the greenback and jolt the currency markets.

USD/JPY for Friday, June 14, 2013

USD/JPY 94.83 H: 95.57 94.43

USD/JPY Technical

The yen remains strong, as the pair trades in the high-94 range. The proximate support and resistance lines remain intact (S1 and R1 above). The pair continues to receive support at 94.02, which is protecting the 94 level. This is followed by support at 92.73. On the upside, the pair is testing resistance at 94.91. This line has already been breached today, and could break if the yen can continue its upward momentum. This is followed by strong resistance at 96.03.

• Current range: 94.02 to 94.91

Further levels in both directions:

• Below: 94.02, 92.73, 91.62 and 91.02
• Above: 94.91, 96.03, 97.18, 98.94, 99.57 and 100.00

OANDA’s Open Positions Ratio

USD/JPY ratio is almost unchanged in the Friday session. This is not reflected in the current movement of the pair, as the yen continues to post gains. Long positions have a significant majority in the ratio, signaling a strong bias towards a correction and recovery by the US dollar.

The yen has enjoyed a superb week, with strong gains at the expense of the dollar. We could see more movement from USD/JPY during the day, as the US releases key inflation and consumer confidence numbers.

USD/JPY Fundamentals

• 12:30 US PPI. Estimate 0.1%.
• 12:30 US Core PPI. Estimate 0.1%.
• 12:30 US Current Account. Estimate -110B.
• 13:00 US TIC Long-Term Purchases. Estimate 35.0B.
• 13:15 US Capacity Utilization Rate. Estimate 77.9%.
• 13:15 US Industrial Production. Estimate 0.3%.
• 13:55 US Preliminary UoM Consumer Sentiment. Estimate 84.9 points.
• 13:55 US Preliminary UoM Inflation Expectations.

*Key releases are highlighted in bold

*All release times are GMT

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.