USD/JPY – Yen Surges on Dovish Fed Minutes, Breaks Below 109

USD/JPY is flat on Thursday, as the pair is trading at 108.40 in the European session. On the release front, the US will publish Unemployment Claims and Fed chair Janet Yellen speaks at an event in New York. In Japan, there are no economic releases on the schedule.

The Japanese yen has been red hot, surging 500 points against the greenback since March 29. The yen rally has continued following the dovish Fed minutes on Wednesday. USD/JPY is trading close to the 108 level, and analysts are saying the pair could drop below the symbolic 100 level. The Japanese economy continues to languish, grappling with little inflation and weak growth. The BoJ has tried everything it could find in its tool box, including negative rates, but the economy hasn’t responded and inflation levels remain weak. If the markets feel that the BoJ has no more monetary easing ammunition left, then the yen could continue to strengthen. The next BoJ policy meeting takes place at the end of the month.

After Janet Yellen’s cautious speech in New York last week, the Federal Reserve followed suit on Wednesday, as the March meeting minutes were dovish. The minutes indicated that the Fed is unlikely to raise rates before June at the earliest. Although some policymakers expressed approval for a rate hike in April, others expressed concern about the risks to the US economy posed by global economic conditions. There was a split amongst members as to whether the recent pickup in inflation was sustainable. Many Fed members were worried about the lack of options available to the Fed since rates remain close to zero. This could result in significant impact on the currency markets, since the dollar could strengthen if the Fed is unable to implement effective easing measures. The minutes appear to be a validation of Janet Yellen’s remarks last week, which were very dovish and dampened growing enthusiasm about a rate hike as early as April. Bottom line? There is a strong likelihood that the Fed will raise rates twice in 2016, but the timetable of any moves is unclear. Yellen speaks later on Thursday in New York, and the markets will be carefully monitoring her comments, looking for clues as to the Fed’s rate plans.

USD/JPY Fundamentals

Wednesday (April 6)

• 20:30 BoJ Governor Haruhiko Kuroda Speaks

Thursday (April 7)

• 8:30 US Unemployment Claims. Estimate 271K
• 10:30 US Natural Gas Storage. Estimate 7B
• 15:00 US Consumer Credit. Estimate 15.0B
• 17:30 US Fed Chair Janet Yellen Speaks

*Key releases are highlighted in bold

*All release times are DST

USD/JPY for Thursday, April 7, 2016

USD/JPY April 7 at 7:15 DST

Open: 109.72 Low: 108.01 High: 109.90 Close: 108.45

USD/JPY Technical

• USD/JPY has posted steady losses in the Asian and European sessions
• 109.87 has switched to a resistance line following sharp losses by USD/JPY
• 108.37 is under strong pressure in support. It could break during the day
• Current range: 108.37 to 109.87

Further levels in both directions:

• Below: 108.37, 107.57 and 106.25
•  Above: 109.87, 111.50, 112.48 and 113.86

OANDA’s Open Positions Ratio

USD/JPY ratio has shown slight gains towards short positions on Thursday. Long positions command a strong majority (63%), indicative of strong trader bias towards the pair reversing directions and moving upwards.

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.