USD/JPY – Dollar Dips Towards 100 Level, Markets Eye BoJ Minutes

The yen has posted considerable losses on Monday, as USD/JPY trades at 100.50. On the release front, the BoJ will release the minutes from its July policy meeting. BoJ Governor Haruhiko Kuroda will deliver remarks to business leaders at an event in Osaka. In the US, the sole economic event on the schedule is New Home Sales. On Tuesday, the US releases CB Consumer Confidence, a key consumer indicator.

Central banks took over center stage last week, with both the Bank of Japan and the Federal Reserve setting interest rates and releasing rate statements. Since these announcements, USD/JPY has posted sharp losses and is within striking distance of the symbolic 100 level. 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%. 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 to hold rates, 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 within the FOMC underscores continuing divisiveness within the Fed, with one economist calling the Fed decision “one of the most decisive FOMC meetings in recent memory”. Recent comments from FOMC members regarding a rate hike have conflicted with each other, and the mixed messages have left the markets confused. The surprising level of dissent in Wednesday’s Fed announcement will do little to restore market confidence in the Fed, which back in December 2015 promised up to four rate hikes in 2016, but so far has yet to raise rates this year.

The Fed sent a hawkish message to the markets in its policy statement, hinting broadly at a December rate hike. 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. As far as future rate moves, the Fed was dovish, scaling back projections for 2017 from three to two hikes and lowering its longer-run interest rate forecast to 2.9 percent from 3.0 percent.

USD/JPY Fundamentals

Monday (September 26)

  • 1:36 BoJ Governor Haruhiko Kuroda Speaks
  • 10:00 US New Home Sales. Estimate 598K
  • 11:45 US FOMC Member Daniel Tarullo Speaks
  • 19:50 BoJ Monetary Policy Meeting Minutes
  • 19:50 Japanese SPPI. Estimate 0.3%

Tuesday (September 27)

  • 10:00 US CB Consumer Confidence. Estimate 98.6

*All release times are EDT

*Key events are in bold

USD/JPY for Monday, September 26, 2016

USD/JPY September 26 at 6:55 EDT

Open: 100.92 High: 101.08 Low: 100.41 Close: 100.48

USD/JPY Technical

S3 S2 S1 R1 R2 R3
97.61 98.95 99.71 100.55 101.20 102.36
  • USD/JPY showed little movement in the Asian session. The pair has posted considerable losses in European trade
  • 99.71 is providing support
  • 100.55 is fluid and currently a weak resistance line. It could see further action during the Monday session
  • Current range: 99.71 to 100.55

Further levels in both directions:

  • Below: 99.71, 98.95 and 97.61
  •  Above: 100.55, 101.20, 102.36 and 103.73

OANDA’s Open Positions Ratio

USD/JPY ratio is showing long positions with a substantial majority (68%), 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.

Kenny Fisher

Kenny Fisher

Currency Analyst at Market Pulse
Kenny Fisher joined OANDA in 2012 as a Currency Analyst. Kenny writes a daily column about current economic and political developments affecting the major currency pairs, with a focus on fundamental analysis. Kenny began his career in forex at Bendix Foreign Exchange in Toronto, where he worked as a Corporate Account Manager for over seven years.