USD/JPY – Dollar Pushes Above 113 as Yen Under Pressure

USD/JPY has posted small gains in the Tuesday session. In North American trade, the pair is trading at 112.86, up 0.08% on the day. Earlier in the session, the dollar broke above the symbolic 113 level. On the release front, Japanese BoJ Core CPI accelerated to 0.6% in August. Japanese Consumer Confidence improved to 43.9, beating the estimate of 43.5 points. There are no major US releases on the schedule. On Wednesday, the US releases two key events – the ADP Nonfarm Payrolls and the ISM Nonfarm Manufacturing report. As well, Federal Reserve Chair Janet Yellen will speak at an event in St. Louis.

Low Japanese inflation levels have been a sore point in an improving economy, but there was positive news on Tuesday. BoJ Core CPI, the inflation indicator relied upon by the BoJ, accelerate to 0.6% in August, its strongest gain since May 2016. This reading follows Tokyo Core CPI, which rebounded in September with a respectable gain of 0.5%, its best gain since March 2015. Still, inflation levels remain well below the BoJ inflation target of just below 2.0%, and the BoJ has been crystal clear that it has no plans to tighten its accommodative monetary policy until inflation levels move higher.

Japanese manufacturing data has been pointing upwards, so it should come as a surprise that the Tankan Manufacturing Index, which measures confidence levels among large manufacturers, continues to accelerate in 2017. The indicator came in at 12 points in Q1, 14 points in Q2 and an impressive 22 points in Q3, its highest level since 2007. The manufacturing sector has benefited from a stronger global economy, as the demand for Japanese products remains strong. The weak Japanese currency has also helped strengthen the manufacturing and export sectors. The yen declined 1.9 percent in September, as the US dollar has gained ground against its major rivals.

President Trump’s plans to reform health care have come to naught, as the proposed bill never made it past the Senate floor. Next stop is tax reform, another key campaign pledge from Trump’s election campaign. The White House announced the new tax proposal, called the Unified Tax Reform Framework, which includes lowering corporate and personal income taxes. However, the plan is sketchy and short on specifics, most importantly, how will the plan be paid for? Trump has insisted that the cuts will trigger strong economic growth which will more than pay for itself. However, Moody’s, the well-respected credit rating company, is not impressed by the rhetoric. On Monday, Moody’s said that the tax plan is “likely credit negative”, arguing that tax cuts would not be offset in spending cuts, which would result in a higher federal budget deficit and debt. The reduction in federal government revenue would negatively affect the US credit rating. Some Republican lawmakers have already come out against the plan, so it appears that the proposal will have an uphill battle to pass through the House of Representatives and the Senate.

USD/JPY Fundamentals

Tuesday (October 3)

• 1:00 Japanese BoJ Core CPI. Actual 0.6%
• 1:00 Japanese Consumer Confidence. Estimate 43.5. Actual 43.9
• 8:30 US FOMC Member Jerome Powell Speaks
• All Day – US Total Vehicle Sales. Estimate 16.9M

Wednesday (October 4)

• 8:15 US ADP Nonfarm Employment Change. Estimate 151K
• 10:00 US ISM Non-Manufacturing PMI. Estimate 55.5
• 15:15 US Federal Chair Janet Yellen Speaks

*All release times are GMT

*Key events are in bold

USD/JPY for Tuesday, October 3, 2017

USD/JPY October 3 at 9:45 EDT

Open: 112.76 High: 113.19 Low: 112.66 Close: 112.86

USD/JPY Technical

USD/JPY posted gains in the Asian session and showed limited movement in European trade. The pair has posted slight losses in the North American session

• 112.57 is providing resistance
• 113.55 is the next resistance line

Current range: 112.57 to 113.55

Further levels in both directions:

• Below: 112.57, 110.94, 110.10 and 108.69
• Above: 113.55, 114.49 and 115.50

OANDA’s Open Positions Ratios

USD/JPY ratio is unchanged in the Tuesday session. Currently, long positions have a majority (56%), indicative of trader bias towards USD/JPY continuing to move to higher ground.

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.