USD/JPY – Yen Posts Gains on Strong Japanese Manufacturing Report

USD/JPY has posted losses on Monday, as the pair trades at the 102 level. On the release front, there are no major releases out of Japan or the US. Japanese Core Machinery Orders posted a strong gain of 4.9%, well above expectations. In the US, FOMC member Lael Brainard will speak about monetary policy at an event in Chicago.

The yen has started the week with gains, following positive news from the manufacturing sector. Core Machinery Orders jumped 4.9%, crushing the estimate of -2.8%. Preliminary Machine Tool Orders declined 8.4%, but this was markedly better than the previous reading of -19.6%. The Bank of Japan will release a monetary statement next Wednesday, just a day before the Fed releases its statement. The bank cut rates into negative territory earlier in the year, but has had little success in coaxing inflation to higher levels. Will the BoJ adopt further easing measures? BOJ Governor Harihuko Kuroda has been mum about what monetary measures are being considered, although lowering rates or expanding the asset-purchase scheme (or some combination) are the most likely routes. In addition to its standard rate announcement, the BoJ has said it will also conduct a “comprehensive review” of its policy at the September meeting, although it has not provided any details on what exactly this means.

Federal Reserve chair Janet Yellen provided an upbeat assessment of the US economy at the Jackson Hole summit last month, raising speculation that the Fed could raise rates for the first time since December 2015. With the Federal Reserve policy meeting just over a week away, US key numbers will be under the market microscope. We’ll have to wait until Thursday and Friday for major releases, highlighted by retail sales, CPI and consumer confidence numbers. If these numbers are stronger than expected, the odds of a rate hike next week will move higher, and the dollar could make headway against its rivals. Although the US labor market remains close to capacity, many FOMC members will be reluctant to approve a rate hike based solely on strong employment numbers and will want to see stronger numbers throughout the economy. Consumer spending remains a concern, but the main sticking point is weak inflation levels, which will likely weaken even further if the Fed raises rates. The likelihood of a rate hike in 2016 has risen since last week, with the CME FedWatch Tool indicating a 24% chance for a September move and a 44% likelihood of a December hike.

USD/JPY Fundamentals

Sunday (September 11)

• 19:50 Japanese Core Machinery Orders. Estimate -2.8%. Actual 4.9%
• 19:50 Japanese PPI. Estimate -3.5%. Actual -3.6%

Monday (September 12)

• 1:58 Japanese Preliminary Machine Tool Orders. Actual -8.4%
• 17:00 US FOMC Member Lael Brainard Speaks
• 17:01 US 10-year Bond Auction

*All release times are EDT

*Key events are in bold

USD/JPY for Monday, September 12, 2016

USD/JPY September 12 at 6:45 EDT

Open: 102.47 High: 102.67 Low: 102.00 Close: 102.06

USD/JPY Technical

• USD/JPY was flat in the Asian session and has posted slight losses in European trade
• 102.36 has switched to a resistance role following losses by USD/JPY in the Monday session
• 101.20 is providing strong support
• Current range: 101.20 to 102.36

Further levels in both directions:

• Below: 101.20, 100.55, 99.71 and 98.95
•  Above: 102.36, 103.73, 104.99 and 106.38

OANDA’s Open Positions Ratio

USD/JPY ratio is showing long positions with a substantial majority (65%), indicative of trader bias towards USD/JPY reversing directions 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.