USD/JPY – Yen Dips Below 112, Shrugs off Weak Japanese Mfg. Report

USD/JPY has posted moderate losses on Tuesday, as the pair trades at 111.60 early in the North American session. On the release front, Japanese Flash Manufacturing PMI missed expectations, posting a weak reading of 49.1 points. On Tuesday, Japan releases All Industries Activity. The US, will release HPI and two manufacturing reports.

Despite the Bank of Japan’s best efforts, inflation remain anemic, and the threat of deflation is a nightmarish possibility for policymakers. The recent BoJ minutes warned that inflation levels are unlikely to improve, and estimates for upcoming indicators are not promising. Tokyo CPI, a key indicator, will be released on Thursday, and the estimate stands at -0.2 percent, compared to the -0.1% reading a month earlier. The indicator has mustered just one gain since June 2015, underscoring a sluggish economy which has failed to generate any inflation. The Chinese slowdown and collapse in oil prices have exacerbated soft inflation levels. Although there is talk of the BoJ making some aggressive easing moves at its April policy meeting, it is questionable whether the BoJ has any monetary ammunition left, given that lowering rates into negative territory back in January has had little effect on the economy.

Will the real Federal Reserve please stand up? Last week’s Federal Reserve policy statement appeared to pour cold water on any imminent rate hikes, but “not so fast”, according to two Federal Reserve officials. On Monday, John Williams, president of the San Francisco Fed, said that the Fed could raise rates in April and June, if economic conditions improve. Although the dot plot (an FOMC projection of rate hikes) was lowered at the March meeting, Williams insisted that the Fed had not changed its path of rate hikes. His comments were echoed by Atlanta Fed Dennis Lockhart, who also said that an April rate move was a clear possibility. Lockhart noted that the US economy was holding up well, despite weak global conditions. Lockart said that the economy was close to full employment and the Fed’s target of 2 percent inflation was attainable. However, it should be kept in mind that neither Willams nor Lockhart is a voting member of the FOMC. The markets will be hoping to learn more about the Fed’s plans from two other Fed presidents who will speak on Tuesday, Charles Evans and Patrick Harker.

USD/JPY Fundamentals

Monday (March 21)

• 18:00 Japanese Flash Manufacturing PMI. Estimate 50.6 points. Actual 49.1 points

Tuesday (March 22)

• 00:30 Japanese All Industries Activity. Estimate 1.9%. Actual 2.0%
• 9:00 US HPI. Estimate 0.5%
• 9:45 US Flash Manufacturing PMI. Estimate 51.6 points
• 10:00 US Richmond Manufacturing Index. Estimate -1 points

*Key releases are highlighted in bold

*All release times are DST

USD/JPY for Tuesday, March 22, 2016

USD/JPY March 22 at 6:35 DST

Open: 112.14 Low: 111.37 High: 112.21 Close: 111.60

USD/JPY Technical

• USD/JPY was uneventful in the Asian session and has posted losses in European trade
• 111.50 was tested earlier in support and remains under pressure. Will it break later in the day?
• There is resistance at 112.48
• Current range: 111.50 to 112.48

Further levels in both directions:

• Below: 111.50, 109.87, 108.37 and 107.39
• Above: 112.48, 113.86 and 114.65

OANDA’s Open Positions Ratio

USD/JPY ratio remains almost unchanged. Long positions command a strong majority (64%), indicative of strong trader bias towards the pair reversing directions and 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.