The yen is unchanged on Friday, as USD/JPY trades at 100.80. On the release front, Japanese Flash Manufacturing PMI improved to 50.3 points, above the forecast of 49.3 points. There was more good news from the services sector, as Japanese All Industries Activity rose 0.3%, edging above the estimate of 0.2%. The US wraps up the week with one minor event, Flash Manufacturing PMI.
The markets were treated to a double matinée on Wednesday, with both the Bank of Japan and the Federal Reserve setting interest rates and releasing rate statements. The BoJ refrained from making any dramatic moves but did make some minor changes to monetary policy. There was some surprise that the BoJ held rates at -0.10%, as the markets had predicted a cut to -0.20%. The BoJ held monetary base at JPY 80 billion/year, but said it would abandon its monetary base target until inflation reached the 2% target. The bank appears intent on putting greater emphasis on combating deflation, which remains a serious danger to the struggling economy. The BoJ will adopt a “yield curve control” under which it will buy long-term government bonds to keep 10-year bond yields at current levels around 0%. The bank also found that its comprehensive assessment” indicated that the bank’s policy moves had largely been successful, although it acknowledged the side effects of low yields and negative interest rates. After the BoJ announcement, Japanese Prime Minister Shinzo Abe said that the government and the central bank would “work as one in close coordination to accelerate Abenomics”.
As widely expected, the Federal Reserve maintained the benchmark interest rate at 0.25%, where it has been pegged since last December. In a highly unusual step, however, three of the ten FOMC members dissented with the decision. Esther George, Loretta Mester and Eric Rosengren voted against holding rates steady, preferring to raise rates immediately by a quarter-percentage point. This was the first time since December 2014 that three FOMC voting members have dissented with the Fed rate decision. This significant dissent underscores that Janet Yellen has been unable to “rally the troops” behind her leadership, with one economist calling the Fed decision “one of the most decisive FOMC meetings in recent memory”.
The Fed statement noted strong growth in employment and consumer spending, but added that business fixed investment remains weak. The Fed’s “dot plot” indicated that policymakers expect a quarter-rate hike before the end of the year. The Fed’s current stance is being called a “hawkish hold” as the Fed has put the markets on notice that a December rate hike is likely. Using typically bland language, the Fed stated that “the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives.” Reading between the lines, the Fed is looking for stronger inflation numbers, and upcoming inflation indicators (as well as consumer spending and employment) will have a significant impact on the odds of a December rate hike. The Fed sounded dovish about future rate moves, scaling back projections for 2017 from three rate moves to just two hikes.
Thursday (September 22)
- 20:30 Japanese Flash Manufacturing PMI. Estimate 49.3. Actual 50.3
Friday (September 23)
- 00:30 Japanese All Industries Activity. Estimate 0.2%. Actual 0.3%
- 13:45 US Flash Manufacturing PMI. Estimate 52.1
*All release times are EDT
*Key events are in bold
USD/JPY for Friday, September 23, 2016
USD/JPY September 23 at 6:15 EDT
Open: 100.83 High: 101.25 Low: 100.69 Close: 100.80
- USD/JPY posted small gains in the Asian session but has retracted in European trade
- 101.20 was tested earlier in resistance and could see further action in the North American session
- 100.55 is an immediate support line
- Current range: 100.55 to 101.20
Further levels in both directions:
- Below: 100.55, 99.71 and 98.95
- Above: 101.20, 102.36, 103.73 and 104.88
OANDA’s Open Positions Ratio
USD/JPY ratio is unchanged in the Friday session. Currently, long positions have a substantial majority (73%), indicative of trader bias towards USD/JPY continuing to move 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.