USD/JPY – Dollar Punches Past 111 as Japanese Retail Sales Slip

USD/JPY has posted slight gains on Monday, as the pair trades just above the 111 line. On the release front, Japanese Retail Sales contracted for a second straight month, coming in at -0.8%. Later in the day, we’ll get a look at another consumer spending indicator, Household Spending. The markets are expecting a decline of 1.0%. US markets are closed for Memorial Day, so there are no US releases. Due to the holiday, we can expect light trade on Monday. On Tuesday, the US releases CB Consumer Confidence.

The week wrapped up with the US releasing Preliminary GDP for the first quarter. The key indicator, which can be viewed as an economic report card, posted a gain of 0.8%, matching the forecast. This was an improvement above Advanced GDP, which came in at 0.5%. Still, the economy slowed down considerably compared to the fourth quarter of 2015. The export sector has been hurt by the strong US dollar and weak global demand. Oil prices remain low, which has taken a sharp toll on the oil industry. Elsewhere, the UoM Consumer Sentiment report improved in April, climbing to 94.7 points. This marked the indicator’s highest level in 11 months, although it was short of the estimate of 95.7 points. The dollar responded positively to these releases on Friday and posted gains against the yen.

The Fed minutes and comments from Fed chair Janet Yellen have renewed speculation that the Fed may press the rate trigger this summer, and this has bolstered the US dollar. The minutes were more hawkish than expected, resulting in strong volatility in the currency markets. Odds of a rate hike in June have sharply increased, but the Fed will be hard-pressed to raise rates if key indicators don’t show improvement, particularly inflation numbers. Last week, FOMC member John Williams reiterated that he expected the Fed to raise rates two or three times in 2016. However, there appears to be a gap between the hawkish message some FOMC members are sending out and market sentiment, as many analysts are projecting only one rate hike this year. The guessing game as to what the Fed has in mind is likely to continue into June, but it’s safe to say that another rate move will be data-dependent, so stronger US numbers will increase the likelihood of a quarter-point hike at the June policy meeting.

April inflation reports out of Japan continue to paint a bleak picture. Tokyo Core CPI, the primary gauge of consumer inflation, dipped to -0.5%, marking a fifth monthly decline. National Core CPI wasn’t much better, posting a decline of 0.3%. The Bank of Japan has had little success in fighting deflation, which has hampered the economy. The yen showed little reaction to the soft inflation numbers. The currency has appreciated about 9% in 2016, hurting the critical export sector. Japan has threatened to intervene if the yen continues to strengthen, but the US has warned Japan against any unilateral moves. This disagreement surfaced at the recent G-7 meeting of finance ministers, with the US and Japan publicly bickering over whether the yen’s rise has been “disorderly”.

USD/JPY Fundamentals

Sunday (May 29)

  • 19:50 Japanese Retail Sales. Estimate -1.2%. Actual -0.8%
  • 20:20 US FOMC Member James Bullard Speaks

Monday (May 30)

  • 19:30 Japanese Household Spending. Estimate -1.0%
  • 19:30 Japanese Unemployment Rate. Estimate -3.2%
  • 19:50 Japanese Preliminary Industrial Production. Estimate -1.4%

Tuesday (May 31)

10:00 US CB Consumer Confidence. Estimate 96.1

*Key releases are highlighted in bold

*All release times are EDT

USD/JPY for Monday, May 30, 2016

USD/JPY May 30 at 11:50 EDT

Open: 110.77 Low: 110.70 High: 111.45 Close: 111.14

USD/JPY Technical

S3 S2 S1 R1 R2 R3
108.37 109.87 110.66 111.30 112.26 113.39
  • USD/JPY posted small gains in the Asian session. The pair moved slightly higher in European trade but then retracted
  • 111.30 was tested in resistance earlier and is a weak line
  • 110.66 is providing support
  • Current range: 110.66 to 111.30

Further levels in both directions:

  • Below: 110.66, 109.87, 108.37 and 107.57
  •  Above: 111.30, 112.26 and 113.39

OANDA’s Open Positions Ratio

The USD/JPY ratio is showing slight movement towards long positions on Monday, continuing the direction which marked the Friday session. Long positions retain a majority (60%), indicative of trader bias towards USD/JPY breaking out 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.

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.