USD/JPY – Surging Yen Breaks Below 108

USD/JPY is steady on Monday, as the pair slightly above the 108 line in the European session. Earlier, the pair showed some strength and dropped to a low of 1o7.62. On the release front, Japanese Core Machinery Orders posted a sharp decline of 9.2%, compared to a 15.0% gain a month earlier. BoJ Governor Haruhiko Kuroda speaks at an annual meeting of trust banks. In the US, there are no economic indicators on the schedule, but the markets will be paying attention to a number of events. US Treasury Secretary Jack Lew will speak at an event in Washington. FOMC member William Dudley will deliver remarks at an event in New York, and the Federal Reserve is expected to release a statement concerning the discount rates to be charged to Federal Reserve Banks.

The Japanese yen continues its excellent run, surging over 400 points against the greenback in April. With experts saying the currency could drop to 105 or lower, the Japanese government has sent out warnings about possible intervention to slow down the yen’s huge appreciation. On Sunday, Chief Cabinet Secretary Yoshihide Suga said that although Japan would adhere to the Group of 20’s agreement to avoid competitive devaluations, this did not preclude Japan from intervening against “manipulation of currencies”. The yen has jumped 10 percent in 2016, and despite this tough talk, the upward trend could continue, as the safe-haven yen remains attractive in a turbulent global economy.

The Japanese economy continues to languish, grappling with weak inflation and growth levels. The BoJ has implemented strong easing measures, including negative interest rates, but the economy hasn’t responded as hoped. If the markets feel that the BoJ has no more monetary easing ammunition left, the yen could continue to strengthen. The next BoJ policy meeting takes place at the end of the month. Will the central bank adopt further easing measures or is the monetary tool box empty?

A day after the Federal Reserve published its minutes last week, New York Federal Reserve president William Dudley stated that the Fed must approach future rate hikes with caution. Dudley reiterated Fed chair Yellen’s recent comments that although domestic growth was steady, the US economy remained prone to risks due to turbulent conditions in the global economy. Caution has been the Fed’s theme of late, dampening speculation about an April rate hike, which had been stoked by recent hawkish statements from several Fed officials. The minutes showed strong differences of opinion among policymakers, with some members in favor of an April hike. As well, 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 concern can have significant impact on the currency markets, since the dollar could strengthen if the Fed is unable to implement effective easing measures. What can we expect from the Fed in 2016? A hike in April is highly unlikely, and a move in June will depend on economic indicators, in particular employment and inflation numbers.

USD/JPY Fundamentals

Sunday (April 10)

• 19:50 Japanese Core Machinery Orders. Estimate -11.8%. Actual -9.2%

Monday (April 11)

• 2:15 BoJ Governor Haruhiko Kuroda Speaks
• 8:30 US Treasury Secretary Jack Lew Speaks
• 9:25 US FOMC Member William Dudley Speaks
• Tentative – Federal Reserve Announcement
• 19:50 Japanese Bank Lending

*Key releases are highlighted in bold

*All release times are DST

USD/JPY for Monday, April 11, 2016

USD/JPY April 11 at 5:40 DST

Open: 108.29 Low: 107.62 High: 108.32 Close: 108.15

USD/JPY Technical

• USD/JPY posted losses in the Asian session but has recovered in European trade
• 107. 57 held steady in support as the pair posted sharp losses in the Asian session before recovering
• 108.37 remains busy and is a weak resistance line
• Current range: 107.57 to 108.37

Further levels in both directions:

• Below: 107.57, 106.25 and 105.19
•  Above: 108.37, 109.87, 110.66 and 111.50

OANDA’s Open Positions Ratio

USD/JPY ratio is showing little movement on Monday. Long positions command a strong majority (65%), 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.