USD/JPY – Yen Hugs 102, US CPI Edges Above Estimate

USD/JPY is almost unchanged on Friday, as the pair trades just above the 102 line in the North American session. On the release front, the US posted following better-than-expected consumer inflation releases in August. CPI posted a gain of 0.2%, edging above the forecast of 0.1%. It was a similar story with Core CPI, which rose 0.3%, compared to the forecast of 0.2%. Later in the day, the US will release UoM Consumer Sentiment, which is expected to improve slightly to 91.0 points. There are no Japanese releases on the schedule.

The Bank of Japan embarked on an aggressive quantitative and qualitative easing scheme back in April 2013, with high hopes of kick-starting the economy and raising inflation levels. Fast forward over three years later, and the results have been very disappointing. Inflation is closer to zero than the bank’s target of 2% and economic growth has sputtered. With the Bank of Japan holding a policy meeting on September 20-21, the key question is will the bank hop off the sidelines and adopt further easing measures. On Wednesday, a report out of Japan said that BoJ plans to continue with its negative rate policy, and could make further cuts at the September meeting. If the bank does lower rates, the yen would likely weaken. The BoJ will conduct a “comprehensive review” of its monetary policy at the meeting and this event could result in some volatility from USD/JPY.

US retail sales reports for August disappointed the markets. Retail Sales, the primary gauge of consumer spending, declined 0.3% in August, marking its first decline in five months. There was no relief from Core Retail Sales, which fell 0.1% and missed expectations. These weak numbers, which point to softer spending by the US consumer, have reduced the likelihood of rate hike in 2016 – a September hike is currently priced in at 12%, while the likelihood of a December move has fallen to 40%. Thus it appears to be a safe bet that a September rate hike is off the table.

With a crucial Federal Reserve policy meeting on September 21, the Fed has imposed a blackout period on public comments from FOMC members. Recent comments from FOMC members, which have been almost contradictory at times, have left the markets confused and reinforced the perception that the Fed remains divided regarding its near-future monetary policy. FOMC member Eric Rosengren recently came out in support of a rate hike, saying that “tightening is likely to be appropriate”, and went as far as to say that the US economy could overheat if the Fed didn’t act soon. Earlier this week, FOMC member Lael Brainard sounded much more cautious, saying it would be prudent to maintain a loose monetary policy. Brainard noted global uncertainties and weak inflation as reasons for the Fed not to rush into raising rates.

USD/JPY Fundamentals

Friday (September 16)

• 8:30 US CPI. Estimate 0.1%. Actual 0.2%
• 8:30 US Core CPI. Estimate 0.2%. Actual 0.3%
• 10:00 US Preliminary UoM Consumer Sentiment. Estimate 91.0
• 10:00 US Preliminary UoM Inflation Expectations
• 16:00 US TIC Long-Term Purchases. Estimate 30.2B

*All release times are EDT

*Key events are in bold

USD/JPY for Friday, September 16, 2016

USD/JPY September 16 at 8:50 EDT

Open: 101.98 High: 102.17 Low: 101.75 Close: 102.10

USD/JPY Technical

• USD/JPY was flat in the Asian session. The pair posted slight losses in the European session but has recovered in North American trade
• 101.20 is providing support
• 102.36 is a weak resistance line. It could be tested in the North American session
• Current range: 101.20 to 102.36

Further levels in both directions:

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

OANDA’s Open Positions Ratio

USD/JPY ratio is unchanged on Friday, consistent with the lack of movement from USD/JPY. Currently, long positions have a substantial majority (65%), indicative of trader bias towards USD/JPY breaking out 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.