USD/JPY – Yen Close to 3-Month Lows Ahead of Japanese Consumer Spending, Inflation Reports

USD/JPY is showing little change in the Thursday session, as the pair trades at 104.60. In the US, there are two key releases on the schedule – core durable goods orders and unemployment claims. Japan will release Household Spending, with the markets braced for a sharp decline of 4.2%. As well, Tokyo Core CPI will be released, with the estimate standing at -0.5%. On Friday, the US will release Preliminary GDP, with an estimate of 2.5%. We’ll also get a look at UoM Consumer Sentiment.

The Bank of Japan has consistently sent out messages to the markets that it is willing to adopt further easing if needed, although it has been slow to back up its words with action. On Wednesday, the bank’s easing policy was criticized by a former deputy BoJ Governor, who warned against further monetary stimulus. Toshiro Muto said that the BoJ’s ultra-easy policy had blurred the boundary between fiscal and monetary policy. On the currency front, Muto said that the government was unlikely to intervene in the currency markets unless the yen appreciated sharply and moved towards the 90 level. Earlier this year, the US and Japan squabbled at a G-20 meeting when Japan said it would consider unilateral intervention if the yen became too strong. The US slammed Japan over this announcement, reminding Japan that the G-20 members were bound to avoid any currency manipulations.

The markets remain confident that the Fed will press the rate trigger in December, with a hike priced in at 72 percent by CME Fed Watch. The prospect of a US rate hike for the first time in a year has bolstered the US dollar against its rivals, including the yen. The US economy remains strong, buoyed by a labor market that is close to capacity, with unemployment at a healthy 5.0%. Inflation levels remain low and are unlikely to show much improvement in the next few months. Although the Fed would prefer stronger inflation levels, other economic indicators remain strong enough such that the lack of inflation is unlikely to be the critical factor in the Fed rate decision. The Fed will also hold a policy meeting in early November, but it’s unlikely to make any rate moves just before the US presidential election.

USD/JPY Fundamentals

Thursday (October 27)

• 8:30 US Core Durable Goods Orders. Estimate 0.2%
• 8:30 US Unemployment Claims. Estimate 261K
• 8:30 US Durable Goods Orders. Estimate 0.1%
• 10:00 US Pending Home Sales. Estimate 1.2%
• 10:30 US Natural Gas Storage. Estimate 71B
• 19:30 Japanese Household Spending. Estimate -2.6%
• 19:30 Japanese Tokyo Core CPI. Estimate -0.5%
• 19:30 Japanese National Core CPI. Estimate -0.5%
• 19:30 Japanese Unemployment Rate. Estimate 3.1%

Upcoming New Events

Friday (October 28)

• 8:30 US Advance GDP. Estimate 2.5%
• 10:00 US Revised UoM Consumer Sentiment. Estimate 88.2

*All release times are EDT

*Key events are in bold

USD/JPY for Thursday, October 27, 2016

USD/JPY October 27 at 5:35 EDT

Open: 104.56 High: 104.75 Low: 104.27 Close: 104.63

USD/JPY Technical

• USD/JPY posted slight gains in the Asian session but has retracted in the European session
• 103.02 is providing strong support
• 104.32 remains a weak resistance line
• Current range: 103.02 to 104.32

Further levels in both directions:

• Below: 103.02, 102.36 and 101.20
•  Above: 104.32, 105.44, 106.72 and 107.49

OANDA’s Open Positions Ratio

USD/JPY ratio is showing little movement on Thursday, consistent with the lack of movement from USD/JPY. Currently, long positions have a slight majority (53%), indicative of slight 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.