USD/JPY – Yen Subdued Ahead of US Services PMI, Japanese GDP

USD/JPY is showing little movement on Tuesday, as USD/JPY is trading at 103.30. On the release front, today’s key event is US ISM Non-Manufacturing PMI. The indicator is expected to remain steady, with an estimate of 55.4 points. There are no Japanese releases on Tuesday. Japan will release Final GDP on Wednesday. The economy is expected to show no growth in the second quarter, with an estimate of 0.0%.

Earlier this week, Bank of Japan Governor Haruhiko Kuroda said that he was ready to adopt further easing measures to boost the economy, saying that the bank was prepared to use new or existing tools as part of its monetary policy. Kuroda said that deepening negative rates remained an option, although he did not provide any specifics about what steps the bank has in mind. Analysts expect the BoJ to adopt further easing later this month, either by cutting rates, expanding quantitative easing, or some combination of the two.

Japanese consumer and business indicators were soft last week, as the economy continues to struggle. Consumer Confidence rose to 42.0 points in August, its highest level since December 2015. Still, the Japanese consumer remains pessimistic about the economy, and pessimistic consumers are apt to hold tight to the purse strings and spend less, which has negative ramifications throughout the economy. On the business front, Japanese Capital Spending continues to soften, pointing to weaker spending in the business sector. The indicator came in at 3.1% in the second quarter, compared to 4.2% in Q1. This marked the weakest gain since Q4 of 2014. There was no relief from the manufacturing front, as Final Manufacturing PMI came in at 49.5 points. The index has posted six straight readings below the 50-point level, pointing to ongoing contraction.

The robust US labor market hit a bump in August, as US employment numbers were dismal on Friday. Nonfarm Payrolls plunged to 151 thousand in August, down from 255 thousand a month earlier. This was well short of the forecast of 180 thousand. Wage growth also disappointed, as Average Hourly Earnings edged lower to o.1%, shy of the forecast of 0.2%. Clearly this was not positive news, but August job data is often unreliable and tends to miss market forecasts. Will the Fed look the other way and ignore the weak job data? The markets apparently think so, as the odds of a rate hike this year are about the same after the payrolls report – the  the likelihood of a September hike is 20 percent, while a December increase is pegged at 60 percent. Still, even if the August payrolls release is overlooked, many FOMC members remain uneasy about a rate hike, especially given the persistent lack of inflation in the economy. Key inflation indicators will be released in mid-September, just before the Fed policy meeting on September 21. These releases could play a critical role in determining if the Fed presses the rate trigger this month, or decides to revisit the rate question in December, which would be exactly a year from the last rate hike.

USD/JPY Fundamentals

Tuesday (September 6)

• 10:00 US ISM Non-Manufacturing PMI. Estimate 55.4
• 10:00 US IBD/TIPP Economic Optimism. Estimate 48.6
• 10:00 US Labor Market Conditions Index

Wednesday (September 7)

• 19:50 Japanese Final GDP. Estimate 0.0%

*All release times are EDT

*Key events are in bold

USD/JPY for Tuesday, September 6, 2016

USD/JPY September 6 at 9:40 EDT

Open: 103.50 High: 103.81  Low: 103.24 Close: 103.33

USD/JPY Technical

• USD/JPY was choppy in the Asian session and has posted slight losses in European trade
• 102.36 is providing strong support
• 103.73 was tested in resistance earlier in the Tuesday session
• Current range: 102.36 to 103.73

Further levels in both directions:

• Below: 102.36, 101.20, 99.71 and 98.95
•  Above: 103.73, 104.99 and 106.38

OANDA’s Open Positions Ratio

USD/JPY ratio is unchanged on Tuesday. Currently, long positions have 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.