USD/JPY – Yen Subdued, Markets Eye BoJ Statement

USD/JPY is steady on Monday, following sharp gains in the Friday session. The pair is trading at 113.60 in the European session. On the release front, Japanese Core Machinery Orders surged by 15 percent, crushing the estimate of 2 percent. Next up is the BoJ monetary policy statement, which should be treated as a market-mover. There are no US releases on Monday, but on Tuesday we’ll get a look at Retail Sales and PPI reports, with the markets bracing for small declines from these indicators.

The Japanese yen softened on Friday, in response to a dismal manufacturing report. The BSI Manufacturing Index dropped 7.9 points in the fourth quarter, compared to an estimate of a gain of 4.2 points. This marked the indicator’s worst showing in seven months. The manufacturing sector has been hit hard by the Chinese slowdown, as China is one of Japan’s top trading partners. Japanese fundamentals continue to point to an economy in deep trouble. GDP contracted in the fourth quarter, current account surplus dropped sharply, and PPI posted an eleventh straight decline. These soft numbers have intensified pressure on the BoJ to take further monetary action at its policy meeting on Monday. The BoJ adopted negative interest rates in late January, but policymakers have little to show for the surprise move which shocked the markets. Inflation has not lifted, Japanese bond yields are below or close to zero, and the yen has actually gained 5 percent since the BoJ move. With this gloomy background in mind, we could see the BoJ announce some easing moves, which would likely weaken the yen.

After Monday, it’s a busy week on the US release front, and that could spell significant volatility in the currency markets. The US will release inflation and retail sales reports on Tuesday, followed by the FOMC policy statement. Will the Federal Reserve raise interest rates? Most experts say no, given current economic conditions. The economy continues to expand, although growth has been softer in 2016 compared to the red-hot pace which marked the economy in H2 of 2015. The primary trouble spot in the economy is the inflation picture, as inflation levels remains very low, a result of weak global demand and low oil prices. The cautious Fed will likely wait until mid-2016, and seriously consider a rate hike if the US economy shows that it is gaining steam.

USD/JPY Fundamentals

Sunday (March 13)

• 19:50 Japanese Core Machinery Orders. Estimate 2.0%. Actual 15.0%

Monday (March 14)

• Tentative – BoJ Monetary Policy Statement
• 8:30 US Core Retail Sales. Estimate -0.2%
• 8:30 US PPI. Estimate -0.2%
• 8:30 US Retail Sales. Estimate -0.1%

*Key releases are highlighted in bold

*All release times are EST

USD/JPY for Monday, March 14, 2016

USD/JPY March 14 at 8:30 EST

Open: 113.77 Low: 113.50 High: 114.01 Close: 113.64

USD/JPY Technical

• USD/JPY has been choppy in the Asian and European sessions.
• 113.86 is under strong pressure in resistance and could break during the day
• 112.48 has strengthened in support following strong gains by USD/JPY
• Current range: 112.48 to 113.86

Further levels in both directions:

• Below: 112.48, 111.50, 109.87, and 108.37
• Above: 113.86, 114.65, 115.85 and 116.65

OANDA’s Open Positions Ratio

USD/JPY ratio has shown some movement towards short positions. This is consistent with strong gains by USD/JPY on Friday, which led to the covering of long positions. Still, long positions retain a strong majority (60%), indicative of strong trader bias towards the pair moving to higher levels.

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.