USD/JPY – BOJ Stimulus Move Continues to Weigh on Yen

USD/JPY continues to rally on Monday, as the pair trades in the mid-113 range late in the European session. USD/JPY has gained a remarkable 500 points in the past week, as the yen finds itself trading at its lowest level since December 2007. On the release front, On the release front, Japanese markets are closed for a holiday. In the US, today’s highlight is ISM Manufacturing PMI. The markets are expecting little change in the upcoming release, with an estimate of 56.5 points.

The dollar surged against the yen on Friday, gaining over 300 points. The yen took a tumble after the BoJ surprised the markets with a move to increase monetary stimulus. The BoJ increased the monetary base from JPY 60-70 trillion to 80 trillion per year. The Japanese central bank said that the move was needed to increase inflation, which remains short of the central bank’s target of 2%.

Japanese data was a mix last week. Preliminary Industrial Production sparkled in September, with a gain of 2.7%, compared to a reading of -1.5% a month earlier. The estimate stood at 2.3%. Earlier in the week, Japanese Retail Sales was unexpectedly strong in September, climbing 2.3%, its strongest gain since March and well above the estimate of 0.9%. There has been concern about consumer spending in Japan after the sales tax was raised in April from 5% to 8%. The government plans to increase the tax to 10%, but is wary about hurting the economy, which has been marked by modest growth. Meanwhile, Household Spending, an important consumer spending indicator, fell 5.6%, well below expectations.

It was another solid performance from US GDP on Thursday, which posted a strong gain of 3.5% in Q3, ahead of the estimate of 3.1%. Although this was short of the Q2 reading of 4.0%, the two readings mark the strongest six-month gain we’ve seen in ten years. Unemployment Claims increased slightly to 287 thousand, slightly higher than the previous reading of 284 thousand. However, the four-week average remains at multi-year lows, pointing to an improving labor market.

The US dollar posted strong gains on Wednesday, boosted by a hawkish Federal Reserve policy statement. The Fed said that the labor market is strengthening and inflation remains on target, although it did note that the labor market participation rate remains low. As expected, the Fed completed the taper of its QE3 program. The asset-purchase program was initially started in 2008, at the height of the economic crisis, in order to boost a weak US economy. The termination of the QE is an important vote of confidence from the powerful Fed that the US economy is on the right track.

USD/JPY for Monday, November 3, 2014

USD/JPY November 3 at 12:05 GMT

USD/JPY 113.76 H: 113.78 L: 112.57

 

USD/JPY Technical

S3 S2 S1 R1 R2 R3
110.68 112.94 113.68 114.65 115.75 116.66

 

  • USD/JPY continues its impressive rally on Monday. The pair was steady in the Asian session and has posted strong gains in European trade, breaking past resistance at 11.294 and 113.68.
  • 114.65 is a strong resistance line.
  • 113.68 has switched to a support role as the dollar continues to move upwards. This weak line could see more activity during the day. 112.94 is stronger.
  • Current range: 113.68 to 114.65

Further levels in both directions:

  • Below: 113.68, 112.94, 110.68, 109.82 and 108.58
  • Above: 114.65, 115.75 and 116.66 and 117.94

 

OANDA’s Open Positions Ratio

USD/JPY ratio is pointing to gains in long positions on Monday. This is consistent with the pair’s movement, as the dollar continues to post strong gains against the yen. The ratio currently is close to evenly split, indicative of a lack of trader bias towards what direction USD/JPY will take.

 

USD/JPY Fundamentals

  • 14:45 US Final Manufacturing PMI. Estimate 56.1 points.
  • 15:00 US ISM Manufacturing PMI. Estimate 56.5 points.
  • 15:00 US Construction Spending. Estimate 0.8%.
  • 15:00 US ISM Manufacturing Prices. Estimate 58.3 points.
  • All Day – US Total Vehicle Sales. Estimate 16.6M.

*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.

Kenny Fisher

Kenny Fisher

Currency Analyst at Market Pulse
Kenny Fisher joined OANDA in 2012 as a Currency Analyst. Kenny writes a daily column about current economic and political developments affecting the major currency pairs, with a focus on fundamental analysis. Kenny began his career in forex at Bendix Foreign Exchange in Toronto, where he worked as a Corporate Account Manager for over seven years.