USD/JPY – Yen Slumps Again

The Japanese yen has reversed direction after its recent gains against the US dollar. USD/JPY has climbed up over 100 pips in Thursday trading, and the yen is again above the 89 line. The pair pushed higher following weak consumer confidence and business data out of Japan on Wednesday. As well, the markets are expecting further easing by the Bank of Japan at next week’s policy meeting.  In the US, it will be a busy day, with three key releases – Building Permits, Unemployment Claims and the Philly Fed Manufacturing Index. There are no Japanese releases on Thursday.

The Japanese yen resumed its downward ways, following weak Japanese data. Consumer Confidence dropped to 39.2 points, its lowest level since last January. This figure was well below the market estimate of 40.7 points. The weak release points weak optimism about the economy, despite the aggressive steps and rhetoric of the new Japanese government, led by Prime Minister Shinzo Abe. The new government will have to show real improvement in economic conditions before Japanese consumers feel confident about the economy and bolster growth and economic activity by opening their wallets and spending. The other Japanese release was also a disappointment, as Tertiary Industry Activity declined for the second month in a row, coming in at -0.3%. The markets had expected a 0.1% gain.

The yen remains under strong pressure as Prime Minister Abe has been continually talking about lowering the currency’s value and has been leaning on the Bank of Japan to implement further easing steps which will push the yen down even further. Bank of Japan Governor Masaaki Shirakawa stated that the BOJ will introduce further monetary easing steps, and warned that the economy would continue to struggle due to weak global conditions. The BOJ implemented monetary easing throughout 2012, and is widely expected to follow suit when it announces its benchmark interest rate on January 21st. Analysts expect the central bank to double its inflation target to 2%, which is the government’s stated target.

In a recent report, the World Bank downgraded its forecast for global growth. In its Global Economic Prospects report, which is issued twice a year, the prestigious institution said that global growth in 2013 would be 2.4%. This was down from the 3.0% estimate the World Bank stated in its June 2012 report. The World Bank noted persistent weaknesses in the economies of developed nations, citing austerity measures, high unemployment and weak business confidence. The report also sounded the alarm over the damage in market confidence due the ongoing fiscal battles in the US, and urged a quick resolution of the issue so as to ensure market stability.

In a speech earlier this week, Fed Reserve Chair Bernard Bernanke may have disappointed some, as he did not give any clues about when the current round of QE might end. Bernanke did little more than express his concern about the speed of the US recovery. He noted that the economy has shown signs of improvement, but he was still unsatisfied with the economy’s progress. Given these sentiments, it seems unlikely that the Fed will consider ending the current round of QE in 2013, barring a spectacular recovery by the US economy during the year. Underscoring this point, the president of the San Francisco Federal Reserve Bank, John Williams, stated that he expected the Fed to continue its bond buying program “well into the second half of 2013.” Although Bernanke avoided talking about QE, he was more forthcoming with regard to the debt ceiling issue, which is likely to be a hot topic, if not a full-blown crisis, in February. The US is quickly approaching its debt limit of $16.4 trillion, and Bernanke said Congress must act and raise the debt ceiling. He further noted that tinkering with interest rates will not make much difference, but that if Congress ensures that the country’s fiscal house is in order, interest rates would gradually rise as the economy improves.

In the US, key data continues to paint a mixed picture. Retail Sales looked sharp, rising 0.5%. This beat the estimate of 0.2%, and was the biggest increase since October. Core Retail Sales also looked good, climbing 0.3%, and exceeding the market forecast of 0.2%. However, the news was not all good, as these positive numbers were not reflected in manufacturing data, which looked very weak. The Empire State Manufacturing Index dropped -7.8 points, shocking the markets, which had anticipated a gain of 1.9 points. This important index has posted consecutive declines since July, and points to serious weakness in the US manufacturing sector. Employment numbers continue to be a source of concern, as January’s figures have not looked good. The markets will be closely monitoring Thursday’s releases, as the US publishes key employment, housing and manufacturing data.

USD/JPY for Thursday, January 17, 2013

USD/JPY January 17 at 11:50 GMT

89.42 H: 89.48 L: 88.14

USD/JPY Technical

USD/JPY has reversed direction, as the dollar has resumed making sharp gains against the yen, climbing into the mid-89 range. On the upside, there is resistance at 89.85. This important line could face pressure if the upward trend continues to gain momentum. There is support at  89.31. This is a weak line, and could be tested if the pair shows any downward movement.

• Current range: 89.31 to 89.85.

Further levels in both directions:

• Below: 89.31, 88.55, 87.95, 87.36, 86.97, 86.37 and 86.
• Above: 89.85, 90.23, 90.91, 91.30 and 91.94.

OANDA’s Open Position Ratios

USD/JPY continues to display volatility, as the yen posts sharp losses. However, the ratio has shown almost no movement since Tuesday. The ratio continues evenly split between long and short positions, and the lack of movement indicates uncertainty on the part of traders as to what direction the pair is headed. Will the pair continue to push towards the critical 90 line? We’ll have to keep a close eye on the ratio for any sign of activity.

The pair has had a very busy week, showing strong movement in both directions. The new government has made very  clear its agressive economic agenda, and is pressuring the BOJ to take further easing action, which will push the yen down further. With the BOJ widely expected to adopt more easing measures next week, we can expect the yen to continue to look weak.

USD/JPY Fundamentals

• 13:30 US Building Permits. Estimate 0.91M.
• 13:30 US Unemployment Claims. Estimate 369K.
• 13:30 US Housing Starts. Estimate 0.89M.
• 15:00 US Philly Fed Manufacturing Index. Estimate 7.1 points.

*Key releases are highlighted in bold

*All release times are GMT

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.