USD/JPY – Yen Strengthens, US Employment Reports Next

The Japanese yen continues to gain ground on Thursday, continuing the trend we saw in the Wednesday session. USD/JPY is trading at the 109 line. The yen has jumped as Japanese Capital Spending posted a gain of 4.2% in the first quarter, easily beating expectations. In the US, job numbers will be in focus, with the release of ADP Nonfarm Employment Change, Average Hourly Earnings and Unemployment Claims. As well, OPEC members will gather for a summit in Vienna. In Japan, the sole event on the calendar is Average Cash Earnings.

USD/JPY has posted strong losses this week, losing about 100 points. The yen was bolstered by a 4.2% gain from Japanese Capital Spending in the first quarter, year-on-year. This figure was much stronger than the forecast of 1.9%. The higher than expected gain could lead to a revised Final GDP next week, which could bolster the yen. Earlier this week, Japanese Prime Minister Shinzo Abe announced that a sales tax hike would be delayed until October 2019. The sales tax hike had been scheduled to take effect in 2017. The weak economy has not responded to drastic easing moves from the Bank of Japan, and a tax hike could have pushed the economy into recession. The lengthy postponement is a blow to Abe’s economic platform, known as “Abenomics”, which has failed to deliver robust, sustainable growth to Japan. This economic platform is based on “three arrows” – fiscal stimulus, monetary easing and structural reforms. Abe has been in power for the past three years, but the Japanese economy continues to grapple with weak growth and deflationary trends. Weak global demand and sluggish consumer spending have compounded matters, as the economy continues to struggle.

OPEC members will gather in Vienna on Thursday, but analysts are not expecting OPEC members to reach an agreement on a production cap or new targets, given the deep animosity between Saudi Arabia and Iran. Iran has refused to agree on an output policy in recent years, preventing members from reaching an agreement to lower or freeze production in order to boost low oil prices. Iran reiterated its policy on Wednesday, saying it would not sign off on any commitment regarding output levels. The current situation has allowed OPEC countries to pump at will, as members have adopted a mantra of “every man for himself”, jockeying for a larger piece of the oil market pie. Thursday will also see the release of Crude Oil Inventories, which could result in volatility in the oil market.

Only a few weeks ago, a rate hike in the US was considered very unlikely. However, recent comments by Federal Reserve chair Janet Yellen and other Fed policymakers have strongly hinted that a rate hike is on the table this summer. Last week, Yellen said that if the US economy continued to improve, a rate hike would be appropriate in the “coming months”. This was followed by St. Louis Reserve President James Bullard, who said on Monday that global markets were “well prepared” for a summer interest rate rise, although he didn’t provide any specific dates. According to CME Group, traders have priced in a June rate hike at 28%, 60% for July and 68% in September. Still, the Fed will be hard-pressed to raise rates if key indicators don’t show improvement, particularly inflation numbers. Market sentiment has strongly shifted towards the Fed raising rates, and this could boost the US dollar against its rivals.

USD/JPY Fundamentals

Wednesday (June 1)

• 19:50 Japanese Monetary Base. Estimate 27.2%. Actual 25.5%
• 23:45 Japanese 10-year Bond Auction. Actual -0.09%

Thursday (June 2)

• 1:00 Japanese Consumer Confidence. Estimate 40.4. Actual 40.9
• All Day – OPEC Meetings
• 7:30 US Challenger Job Cuts
• 8:15 US ADP Nonfarm Employment Change. Estimate 177K
• 8:30 US Unemployment Claims. Estimate 270K
• 8:35 US FOMC Member Jerome Powell Speaks
• 10:30 US Natural Gas Storage. Estimate 83B
• 11:00 US Crude Oil Inventories. Estimate -2.7M
• 20:00 Japanese Average Cash Earnings. Estimate 0.9%

Upcoming Key Events

Friday (June 3)

• 8:30 US Average Hourly Earnings. Estimate 0.2%
• 8:30 US Nonfarm Employment Change. Estimate 159K
• 8:30 US Unemployment Rate. Estimate 4.9%
• 10:00 US ISM Non-Manufacturing PMI. Estimate 55.4

*Key events are in bold

*All release times are EDT

USD/JPY for Thursday, June 2, 2016

USD/JPY June 2 at 6:50 EDT

Open: 109.46 Low: 108.74  High: 109.47 Close: 108.99

USD/JPY Technical

• USD/JPY has posted small losses in the Asian and European sessions
• 109.87 has some breathing room in resistance as USD/JPY continues to lose ground
• 108.37 is providing support
• Current range: 108.37 to 109.87

Further levels in both directions:

• Below: 108.37, 107.57 and 105.87
•  Above: 109.87, 110.66, 111.30 and 112.26

OANDA’s Open Positions Ratio

The USD/JPY ratio is unchanged on Thursday. Long positions retain a majority (59%), indicative of trader bias towards USD/JPY reversing directions and moving to higher ground.

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.