USD/JPY – Yen Shrugs off Weak US Employment Numbers

USD/JPY has inched lower in Thursday trading. In the North American session, the pair is trading slightly above the 113 level. On the release front, US job data was a disappointment. ADP Nonfarm Payrolls plunged to 154 thousand, well below the estimate of 184 thousand. Unemployment claims rose to 248 thousand, above the estimate of 243 thousand. On Friday, there are three key employment events – Average Hourly Earnings, Non-Farm Employment Change and the unemployment rate. As well, the Federal Reserve will release its semi-annual Monetary Policy Report.

A rebound in global economic growth has been a godsend for the Japanese economy, which has enjoyed a strong 2017. The export and manufacturing sectors are strong, consumers and businesses are spending more, and GDP expanded at an annualized rate of 1.0% in the first quarter. However, despite years of radical accommodative policy, the Bank of Japan has failed to raise inflation levels, which remain well below the bank’s target of 2 percent. BoJ Governor Haruhiko Kuroda is on record in declaring that the bank would not lower its inflation forecast, but this stance apparently has changed. The BoJ appears ready to raise a white flag (of sorts) and lower its inflation target when policymakers gather for a rate meeting on July 20. However, traders should not expect the move to shake up the markets – any downgrade in the inflation target will likely be of a minor nature.

The Federal Reserve minutes were released on Wednesday, but the markets reacted with little more than a shrug. The minutes revealed divisions in the Fed over inflation and the bloated balance sheet, but failed to provide any clarity about future monetary policy. Some FOMC members expressed unease at the Fed’s current forecast of rate hikes, given the persistently low levels of inflation. According to the current “dot plot”, the Fed expects to raise rates in December, and three times in 2018. There was also dissension over the timing of reducing the $4.2 trillion balance sheet – some policymakers were in favor of starting in September, while others preferred later in the year. At the June meeting, the Fed stated that it would begin reducing the balance sheet this year, but provided no details. Analysts expect the Fed to start winding down the balance sheet in September, prior to a rate hike in December. The markets are lukewarm about a rate hike in December, with the odds at just 50%, according to the CME Group.

USD/JPY Fundamentals

Thursday (July 6)

• 7:30 US Challenger Job Cuts. Actual -19.3%
• 8:15 ADP Non-Farm Employment Change. Estimate 184K. Actual 158K
• 8:30 US Unemployment Claims. Estimate 243K. Actual 248K
• 8:30 US Trade Balance. Estimate -46.3B. Actual -46.5B
• 9:45 US Final Services PMI. Estimate 53.0. Actual 54.2
• 10:00 US ISM Non-Manufacturing PMI. Estimate 56.5. Actual 57.4
• 11:00 US Crude Oil Inventories. Actual -2.4M
• 19:30 US FOMC Member Stanley Fischer Speaks
• 20:00 Japanese Average Cash Earnings. Estimate 0.4%

Friday (July 7)

• 8:30 US Average Hourly Earnings. Estimate 0.3%
• 8:30 US Non-Farm Employment Change. Estimate 175K
• 8:30 US Unemployment Rate. Estimate 4.3%
• 11:00 US Fed Monetary Policy Report

*All release times are GMT

*Key events are in bold

USD/JPY for Thursday, July 6, 2017

USD/JPY July 6 at 10:10 EDT

Open: 113.26 High: 113.47 Low: 112.87 Close: 113.10

USD/JPY Technical

USD/JPY posted slight losses in the Asian session but recovered in European trade. The pair is down slightly in the North American session

• 112.57 is providing support
• 113.55 is the next resistance line
• Current range: 112.57 to 113.55

Further levels in both directions:

• Below: 112.57, 110.94, 109.77 and 108.13
•  Above: 113.55, 114.37 and 115.51

OANDA’s Open Positions Ratio

USD/JPY ratio continues to show little movement this week. Currently, long positions have a majority (55%), indicative of trader bias towards USD/JPY reversing directions and climbing 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.