USD/JPY has posted considerable gains in the Tuesday session, erasing the losses which marked the Monday session. Currently, the pair is trading slightly below the 118 line. On the release front, the Bank of Japan maintained rates at -0.10%. There are no US releases on the schedule.
The US dollar was buoyed by last week’s Federal Reserve rate hike, as the yen is close to its lowest levels since February. If the decline continues, USD/JPY could be headed to the symbolic 120 level, which we last saw in early February. The yen has lost ground on Tuesday, following the BoJ rate announcement. As expected, the bank held rates at -0.10%, where they have been pegged since January. BoJ Governor Haruhiko Kuroda sounded optimistic about the economy but also went out of his way to dampen any speculation that the BoJ was planning to raise rates in the near future. Kuroda said that “powerful monetary easing” would remain in place as the BOJ was determined to reach its goal of two percent inflation. The yen responded with losses, as the dollar pushed above 118 yen following Kuroda’s remarks.
When the Federal Reserve raised interest rates in December 2015, the Fed confidently predicted a series of rate hikes in 2016 in order to keep a hot US economy in check. However, the Fed remained on the sidelines throughout 2016 and refrained from any rate hikes until last week. There were several false starts along the way, as expectations that the Fed would raise rates earlier in 2016 failed to materialize. This led to sharp criticism of Janet Yellen for failing to provide a clear monetary policy. Yellen seems to have been keenly aware of this, as the Fed did everything short of buying advertisements in daily newspapers to get out the message that it planned to raise rates in December. Indeed, a rate hike was priced in as high as 100% by some analysts. Yellen should certainly be commended for a clear message to the markets.
With the one rate hike in 2016 behind us, what’s next for Janet Yellen & Co.? In September, Fed officials said they expected two rate hikes in 2017, but the Fed is now projecting three or even four hikes next year. However, projections need to be adjusted to economic conditions, and the markets will understandably be somewhat skeptical about Fed rate forecasts. As well, the wild card of Donald Trump could also play a critical role in monetary policy. Trump’s economic platform remains sketchy, apart from declarations that he will increase government spending and cut taxes. Still, there is growing talk about ‘Trumpflation’, with the markets predicting that Trump’s policies will increase inflation levels, which have been persistently weak. If inflation levels do heat up, there will be pressure on the Fed to step in and raise interest rates.
Monday (December 19)
- 21:51 BoJ Policy Rate. Estimate -0.10%. Actual -0.10%
- 21:51 BoJ Monetary Policy Statement
Tuesday (December 20)
- 1:30 BoJ Press Conference
- 23:30 Japanese All Industries Activities. Estimate 0.1%
*All release times are EST
*Key events are in bold
USD/JPY for Tuesday, December 20, 2016
USD/JPY December 20 at 6:50 EST
Open: 117.02 High: 118.24 Low: 116.98 Close: 117.92
- USD/JPY has posted slight gains in the Asian and European sessions
- 116.88 is providing resistance
- 118.05 was tested earlier in resistance. It is a fluid line
- Current range: 116.88 to 118.05
Further levels in both directions:
- Below: 116.88, 115.88 and 114.83
- Above: 118.05, 118.85, 119.83 and 121.44
OANDA’s Open Positions Ratio
USD/JPY ratio remains unchanged this week. Currently, long positions have a majority (56%). This is indicative of trader bias towards USD/JPY continuing to move higher.