USD/JPY – Yen Dips as BoJ Minutes Pessimistic About Inflation

The Japanese yen has posted slight gains on Tuesday, reversing the downward movement which marked the Monday session. The pair is trading at 104.40. On the release front, the Bank of Japan released the minutes from its April policy meeting. In the US, there are no economic releases for a second straight day. The markets will be listening closely to Federal Reserve Chair Janet Yellen ,who will appear before the Senate Banking Committee and answer questions about the Fed’s Monetary Policy Report.

The BoJ released the minutes of its April policy meeting, and sounded pessimistic about inflation levels and risks to the Japanese economy. At the April meeting, the BoJ held off from further monetary easing, as it did in the June policy meeting. In the minutes, policymakers said expressed concern that weak global conditions pose risks to the economy and said that lower inflation forecasts from the BoJ were due to downward revisions in GDP and weak wage growth.

With the BoJ shying away from further easing, the Japanese yen could take advantage and continue to climb against the US dollar. USD/JPY has climbed 6.4% so far in June, and dropped to 103.50 on Monday, its lowest level since August 2014. The yen’s strength has alarmed Japanese policymakers, who continue to warn against currency manipulations. On Friday, Japanese Finance Minister Taro Aso said that he wanted global coordination against what he termed “abrupt changes” in currency movements. The US has called on Japan to refrain from any unilateral movement, and at the recent G-7 meeting of finance ministers, the US and Japan publicly bickered as to whether the yen’s rise was a “disorderly movement”. If the yen continues to move closer to the symbolic 100 level, the rhetoric over this issue is likely to heat up.

In or Out? That is the burning question facing millions of Britons, who will go to the polls on Thursday, as the UK votes in a historic referendum on whether to remain in the EU. The campaign between the “In” and “Out” camps will go down to the wire, as polls predict a close vote. The British pound, which has become a barometer of the vote, has posted gains against the US dollar and the yen on Tuesday, bolstered by recent polls which show the “In” camp with a slight lead. Prime Minister David Cameron and prominent business leaders have warned that that a vote to leave the EU would hurt the UK economy, and a recent Treasury report says an EU exit will wipe out 800,000 jobs in the UK and cause a recession. The “Out” camp counters that EU over-regulation has stifled British businesses, and point to countries such as Switzerland that have close economic relations with the EU but are not part of the bloc. Still, leaving the comfort zone of the EU would be a journey into the unknown, and analysts predict that if the UK exits the EU, the pound could dive by as much as 10 percent.

With the Fed’s June policy meeting behind us, the markets are speculating on the timing of another rate hike. In the heady days of December when the Fed raised interest rates, there was talk of up to four hikes in 2016. Fast forward to June, and the Fed hasn’t made a move so far this year. Many analysts are predicting only one hike in 2016, but on Friday, St. Louis Fed President James Bullard said that the economy may need just one hike in the next 2-1/2 years. Bullard did not mince words, bluntly stating that the Fed had done a poor job in its predictions about the US economy, and said the markets have no faith in the Fed’s “dot plot” of projected interest rate policy, as the Fed’s actual pace of rate hikes was much slower than its projections. Bullard added that this “mismatch” between word and action had caused distortions in the global financial markets and eroded credibility in the Federal Reserve.

USD/JPY Fundamentals

Monday (June 20)

  • 19:50 BoJ Monetary Policy Meeting Minutes

Tuesday (June 21)

  • 00:30 Japanese All Industries Activity. Estimate 1.3%. Actual 1.3%
  • 14:00 Federal Reserve Chair Janet Yellen Testifies
  • 18:30 US FOMC Member Jerome Powell Speaks

Upcoming Key Events

Wednesday (June 22)

  • 14:00 Federal Reserve Chair Janet Yellen Testifies
  • 14:00 US Existing Home Sales. Estimate 5.53M

*Key events are in bold

*All release times are EDT

USD/JPY for Tuesday, June 21, 2016

USD/JPY June 21 at 5:50 EDT

Open: 103.82 Low: 103.55  High: 104.59 Close: 104.36

USD/JPY Technical

S3 S2 S1 R1 R2 R3
101.07 102.36 103.73 104.99 105.87 107.16
  • USD/JPY has posted small gains in the Asian and European sessions
  • 103.73 is providing support
  • There is resistance at 104.99
  • Current range: 103.73 to 104.99

Further levels in both directions:

  • Below: 103.73, 102.36 and 101.07
  •  Above: 104.99, 105.87 and 107.16

OANDA’s Open Positions Ratio

The USD/JPY ratio is showing little movement on Tuesday, consistent with the lack of significant movement from USD/JPY. Long positions have a strong majority (70%), indicative of trader bias towards USD/JPY continuing to move 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.

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.