USD/JPY Steady, Japanese GDP Expands

USD/JPY has posted gains on Wednesday, as the pair trades at 109.40 early in the North American session. On the release front, Japan Preliminary GDP posted a gain of 0.4%, beating the estimate of 0.1%.  In the US, the Federal Reserve will release the minutes of its April policy meeting. As well, the US will release Crude Oil Inventories, with the markets expecting a sharp decline of 3.4 million barrels. Japan will publish Core Machinery Orders. On Thursday the US will release Unemployment Claims and the Philly Fed Manufacturing Index.

Japanese economic growth has not been strong, so the Preliminary GDP report for the first quarter was a pleasant surprise. GDP expanded 0.4%, a marked improvement over Final GDP in Q4, which declined by 0.3%. Still, with the Japanese economy facing the threat of deflation and the strong yen hurting exports, speculation has risen that the BoJ will adopt further easing measures in June or July. The BoJ has warned that it could intervene to curb the climb of the high-flying yen, but analysts say that the BoJ is unlikely to make any such moves until after the G7 meeting later in May, which is being hosted by Japan. Japan has tried to “talk down” the yen, with a series of warnings from senior policymakers. On Monday, Masatsugu Asakawa, vice-minister of finance for international affairs, said that Japan is considering intervening to lower the yen’s value, since the high-flying yen poses a significant risk to the stability of the economy. BoJ Governor Haruhiko Kuroda said last week that the BoJ had plenty of room for further easing measures, given that the BoJ has already adopted negative interest rates. Despite strong action from the central bank, inflation levels remain very low. PPI, which measures inflation in the manufacturing sector, continues to post sharp declines, and the April reading of -4.2% was worse than expected.

The Federal Reserve, never far from the financial headlines, will take over center stage on Wednesday with the release of the April minutes. The Fed has sent out the message that a June hike is on the table, but the markets remain skeptical, especially after the weak Nonfarm Payrolls report earlier this month. With the economy showing mixed employment numbers and inflation stuck at low levels, a June hike would be nothing less than a shock, a reason in itself for the Fed to remain on the sidelines. The Fed insists that June will be a “live meeting”, meaning that it will carefully weigh the possibility of a rate hike. The markets don’t seem to be buying into this message, clearly expecting rates to remain at the current level of 0.25%, with the implied probability of a hike down to just 4%. The upcoming minutes could provide some insight as to whether the Fed is considering a move at the June meeting.

USD/JPY Fundamentals

Tuesday (May 17)

  • 19:50 Japanese Preliminary GDP. Estimate 0.1%. Actual 0.4%
  • 19:50 Japanese Preliminary GDP Price Index. Estimate 1.0%. Actual 0.9%

Wednesday (May 18)

  • 10:30 US Crude Oil Inventories. Estimate -3.1M
  • 14:00 US FOMC Meeting Minutes
  • 19:50 Japanese Core Machinery Orders. Estimate -1.9%

Upcoming Key Events

Thursday (May 19)

  • 12:30 US Philly Fed Manufacturing Index. Estimate 3.2
  • 12:30 US Unemployment Claims. Estimate 276K

*Key releases are highlighted in bold

*All release times are EDT

USD/JPY for Wednesday, May 18, 2016

USD/JPY May 18 at 10:30 EDT

Open: 109.02 Low: 108.72 High: 109.61 Close: 109.45

USD/JPY Technical

S3 S2 S1 R1 R2 R3
106.19 107.57 108.37 109.87 110.66 111.30
  • USD/JPY has posted gains in the Asian and European sessions
  • 108.37 is providing strong support
  • 109.87 is a weak resistance line
  • Current range: 108.37 to 109.87

Further levels in both directions:

  • Below: 108.37, 107.57, 106.19, and 105.18
  •  Above: 109.87, 110.66 and 111.30

OANDA’s Open Positions Ratio

USD/JPY ratio is showing little movement on Wednesday. Long positions continue to command a strong majority (59%), indicative of strong trader bias towards USD/JPY continuing to move higher.

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.