USD/JPY – Yen Hugs 100, Markets Eye Japanese Inflation Reports

The Japanese yen continues to have a quiet week, as the currency markets remain subdued ahead of the Jackson Hole conference on Thursday. Currently, USD/JPY is trading at 100.30. On the release front, Japanese inflation indicators kick off with the  Services Producer Price Index, with a forecast of just 0.1%. In the US, today’s highlight is Existing Home Sales, with the indicator expected to dip to 5.52 million. On Thursday, Japan releases Tokyo Core CPI, a key indicator. Over in the US, we’ll get a look at the Core Durable Goods report and Unemployment Claims.

Japan continues to battle deflation, as the government’s Abenomics economic plan and BoJ easing has failed to boost inflation levels. The government has now embarked on an ambitious stimulus plan, but even if successful, it will take time for inflation to gain traction. Tokyo Core CPI, the primary important gauge of consumer spending, continues to post declines, and the estimate for the July reading stands at -0.3%. On the manufacturing front, Japanese manufacturers remain pessimistic. In August, Flash Manufacturing PMI improved to 49.6 points, almost identical to the estimate of 49.5 points. However, the indicator has remained under the 50-point level (which separates contraction and expansion) since February, pointing to ongoing contraction in the industry. We’ll get another look at the mood of manufacturers next week, with the release of Final Manufacturing PMI.

With the Jackson Hole meeting in focus, investors are sticking to the safety of the sidelines, unwilling to make any major moves. This has resulted in a lack of movement in the currency markets so far this week. The conference, which begins on Thursday, will bring together the heads of central banks and other senior financial officials. The markets will be looking for hints from Federal Reserve chair Janet Yellen regarding the Fed’s monetary plans, particularly the timing of a rate hike. FOMC members are expected to express their views in the days leading to the crucial meeting. Fed Vice Chairman Stanley Fischer took the opportunity and sounded upbeat about the US economy, saying that the Fed was close to its aims of a full labor market and the inflation target of 2 percent. The latter claim sounds a bit optimistic, as US inflation levels have consistently been closer to zero than the 2 percent level. Janet Yellen will likely address the inflation issue at Jackson Hole, as inflation levels will be a crucial factor in whether the Fed pulls the rate trigger before 2017. The odds of a September hike are only about 12%, while the likelihood of a December move is around 40%.

Wednesday (August 24)

• 9:00 US HPI. Estimate 0.3%
• 10:00 US Existing Home Sales. Estimate 5.52M
• 10:30 US Crude Oil Inventories. Estimate -0.5M
• 19:50 Japanese Services Producer Price Index. Estimate 0.1%

Thursday (August 25)

• 8:30 US Unemployment Claims. Estimate 265K
• 8:30 US Core Durable Goods Orders. Estimate 0.4%
• 19:30 Tokyo Core CPI. Estimate -0.3%
• All Day – Jackson Hole Symposium

*Key events are in bold

*All release times are EDT

USD/JPY for Wednesday, August 24, 2016

USD/JPY August 24 at 4:15 EDT

Open: 100.30 High: 100.52  Low: 100.23 Close: 100.28

USD/JPY Technical

• USD/JPY has shown limited movement in the Asian and European sessions
• 99.71 is providing support
• 101.20 remains a strong resistance line
• Current range: 99.71 to 101.20

Further levels in both directions:

• Below: 99.71, 98.95 and 97.78
•  Above: 101.20, 102.36, 103.73 and 104.99

OANDA’s Open Positions Ratio

USD/JPY ratio is unchanged on Wednesday, consistent with the lack of movement from USD/JPY. Currently, long positions have a strong majority (73%), indicative of trader bias towards USD/JPY breaking out 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.