USD/JPY – Yen Under Pressure After BOJ Minutes

USD/JPY has edged upwards in Thursday trading as the pair continues to move to higher ground. The pair is trading in the high-104 range in the European session. Will we see the dollar push past the 105 level? In economic news, the Bank of Japan released the minutes of its last policy meeting, which showed that some policymakers are concerned about the economy’s growth. There are host of Japanese releases later in the day, highlighted by Household Spending and Tokyo Core CPI. In the US, there is one event on the schedule – Unemployment Claims.

The Bank of Japan released the minutes of its most recent policy meeting on Thursday and there was a consensus that the economic recovery is continuing. However, two board members expressed concern about the pace of growth, as GDP in Q3 showed a gain of just 0.3%, well off the Q2 reading of 0.9%. Even if GDP expands in Q4, there is concern that a sales tax hike in April could slow growth in 2014. The minutes also indicated that one policy member expressed doubt that the BOJ would reach its inflation target of 2% by 2015. However, BOJ Governor Haruhiko Kuroda insists that the country is on track to meet this goal and he reiterated this on Thursday in a meeting with Prime Minister Shinzo Abe.

In its Monetary Policy Statement last week, the BOJ said it was holding steady with its monetary base and asset purchase programs. The BOJ said it will continue to increase the monetary base by 60-70 trillion yen annually and the purchase of Japanese government bonds by 50 trillion each year. The Bank’s aggressive monetary policy has revived the economy and put the breaks on deflation, but has severely weakened the yen, which is trading at five-year lows against the US dollar.

There was some holiday cheer from US releases on Tuesday, as manufacturing and housing numbers pointed upwards. Core Durable Goods Orders posted a strong gain of 1.2%, its best showing since April. The key manufacturing indicator had posted four consecutive declines, so the sharp gain was welcome news. Durable Goods Orders bounced back from a sharp decline in October with a gain of 3.5%, well above the estimate of 1.7%. New Homes Sales also impressed with a five-month high, climbing to 464 thousand. The estimate stood at 449 thousand.

The year ended on a dramatic note as the Federal Reserve announced last week that it would begin tapering its $85 billion QE program by $10 billion, commencing in January. This will reduce the Fed’s asset purchases to $75 billion every month, comprised of $40 billion in Treasuries and $35 billion in mortgage bonds. The announcement came as somewhat of a surprise, as most analysts had expected the Fed to hold off on any QE reductions until early next year. USD/JPY gained about 160 points after the news.

In its tapering announcement, the Federal Reserve was careful to separate tapering from rate hike expectations. Fed chairman Bernard Bernanke stated that interest rates are likely to remain low even after the unemployment rate drops below 6.5%. Previously, the Fed had stated that it would start to consider rate increases when unemployment fell below this level. With the US unemployment rate at 7.0%, it appears a safe bet that we won’t see any change in US rates for quite some time.

USD/JPY for Thursday, December 26, 2013

USD/JPY December 26 at 11:05 GMT

USD/JPY 104.78 H: 104.84 L: 104.51

USD/JPY Technical

• USD/JPY has edged higher in Thursday trading, as the pair moves closer to the 105 line.
• 104.17 is providing support. This is followed by support at 103.30.
• On the upside, there is resistance at 105.70. This is followed by a resistance line at 106.85, which has remained intact since September 2008.
• Current range: 104.17 to 105.70

Further levels in both directions:

• Below: 104.17, 103.30, 102.53, 101.19 and 100.00
• Above: 105.70, 106.85, 107.73 and 108.77

OANDA’s Open Positions Ratio

USD/JPY ratio is currently evenly split between short and long positions, reflecting a lack of bias in trader sentiment as to which direction the yen will move.

USD/JPY continues to move higher and is within striking distance of the 105 line. With the US releasing key the all -important Unemployment Claims later in the day, we could see some volatility from the pair during the North American session if the reading is not in line with market expectations.

USD/JPY Fundamentals

• 5:00 Japanese Housing Starts. Estimate 9.5%. Actual 14.1%.
• 13:30 US Unemployment Claims. Estimate 346K.
• 23:15 Japanese Manufacturing PMI.
• 23:30 Japanese Household Spending. Estimate 1.9%.
• 23:30 Japanese Tokyo Core CPI. Estimate 0.7%.
• 23:30 Japanese National Core CPI. Estimate 1.1%.
• 23:30 Japanese Unemployment Rate. Estimate 3.9%.
• 23:50 Japanese Preliminary Industrial Production. Estimate 0.6%.
• 23:50 Japanese Retail Sales. Estimate 2.9%.

*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.