USD/JPY – Yen Improves on Strong Japanese Trade Surplus

USD/JPY has started the week with slight losses, as the pair trades at 109.50 early in the North American session. On the release front, Japan’s trade surplus improved to JPY 0.43 trillion, well above the estimate of JPY 0.27 trillion. In the US, today’s sole indicator is Flash Manufacturing PMI. The estimate stands at 51.0 points.

Japan’s trade balance continues to improve. Japan has recorded five straight months in the black, with the surpluses increasing each month. The April reading improved to JPY 0.43 trillion, compared to a March surplus of JPY 0.28 trillion. The strong figure was helped by a sharp dive in imports. At the same time, exports have also fallen, as soft global demand continues to take a toll on the export sector. Meanwhile, the G7 meeting of finance ministers, held in Tokyo, agreed to avoid competitive devaluation of currencies. With the Japanese yen surging in 2016, Japan has sent warnings that it would intervene in the markets and curb the yen’s appreciation. The yen has softened lately, but the Japanese government could feel compelled to act if the yen resumes its climb and moves close to the key 100 level.

Last week’s Federal Reserve minutes were more hawkish than expected, resulting in strong volatility in the global currency markets. The minutes indicated that a June rate hike remains firmly on the table, and the currency markets have reacted with strong volatility. According to the minutes, the Fed wants to see stronger growth in the second quarter as well as better numbers from the inflation and employment fronts. If this is achieved, the Fed said it “likely would be appropriate” to raise rates at the June meeting. This message is somewhat hawkish in comparison to recent statements by Fed chair Janet Yellen, which were more cautious about the strength of the US economy. The markets were skeptical that June would be a “live meeting”, with most analysts assuming that the Fed would continue to sit on the sidelines. The minutes have drastically changed market sentiment, however, since it’s clear that the June meeting will be a crucial one, as it could mark the Fed’s first interest rate hike this year. With the Fed saying that a key factor in a rate hike decision will be the strength of the US economy, upcoming major economic indicators will be under the market microscope, particularly inflation and employment numbers.

USD/JPY Fundamentals

Sunday (May 22)

• 19:50 Japanese Trade Balance. Estimate 0.27T .Actual 043T
• 22:00 Japanese Flash Manufacturing PMI. Estimate 48.3. Actual 47.6

Monday (May 23)

• 00:30 Japanese All Industries Activity. Estimate 0.7%. Actual 0.1%
• 6:15 US FOMC Member James Bullard Speaks
• 10:45 US Flash Manufacturing PMI. Estimate 51.0

Upcoming Key Events

Tuesday (May 24)

• 10:00 US New Home Sales. Estimate 521K

*Key releases are highlighted in bold

*All release times are EDT

USD/JPY for Monday, May 23, 2016

USD/JPY May 23 at 8:20 EDT

Open: 110.02 Low: 109.33 High: 110.08 Close: 109.47

USD/JPY Technical

• USD/JPY has posted slight losses in the Asian and European sessions
• 109.87 is a weak resistance line
• 108.37 is providing strong support
• Current range: 108.37 to 109.87

Further levels in both directions:

• Below: 108.37, 107.57 and 106.19
•  Above: 109.87, 110.66, 111.30 and 112.26

OANDA’s Open Positions Ratio

In the USD/JPY ratio, long positions have a majority (54%), indicative of trader bias towards USD/JPY reversing directions and moving 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.