USD/JPY – Yen Takes Breather From Huge Gains

The Japanese yen took a well-deserved rest following its steep climb on Tuesday. The yen gained over 100 points after the Bank of Japan meeting, and has leveled off in the mid-89 range. In the US, economic data was weak on Tuesday. Existing Home Sales came in well below the market forecast, and the Richmond Manufacturing Index dropped to a six-month low. The Bank of Japan issued its Monthly Report, and Japanese Trade Balance will be released later on Wednesday. In the US, the lone release is the House Price Index.

The yen rocketed on Tuesday, after the Bank of Japan met for a widely-anticipated policy meeting. As expected, the BOJ changed its inflation stance, increasing its inflation target from 1% to 2%. This is in line with the Japanese government’s target. Prime Minister Abe has been vocal about combating deflation, and had been putting strong pressure on the BOJ to change its inflation target. The central bank also announced an open-ended commitment to buy assets under its asset-buying and lending scheme. The monthly purchase amount will be about JPY 13 trillion ($145 billion) each month. However, the program will not begin until January 2014. These steps underscore that the BOJ will be an active partner in the government’s aggressive economic platform to combat deflation and kick-start the anemic Japanese economy. Market sentiment was generally positive, although some analysts feel that the easing steps do not go far enough, and expressed disappointed that the asset-buying program will not start until next year.

In the US, Existing Housing Sales disappointed the markets. The key housing indicator slipped to 4.94 million, which was well below the estimate of 5.09M. There was more bad news from the manufacturing sector, as the Richmond Manufacturing Index plunged 12 points, its worst showing since July 2012. The markets had anticipated a rise of 4 points. This release was the third dismal manufacturing reading in January, and underscores that the US manufacturing sector is experiencing ongoing contraction.

The US fiscal cliff crisis has taken a short breather, but Congress is getting ready to do battle over the next round of budget negotiations, which have been stalled due to sharp disagreements between the Republicans and Democrats. The Republicans have announced that they will table a proposal in Congress which would extend the debt ceiling until April 15. This would allow the U.S. government to borrow enough money to keep it fully operating for the next three months until the sides can reach an agreement. The recent fiscal cliff agreement postponed the hot issues of spending cuts and the huge US debt, but another fiscal deadline is not far away. On March 1, steep spending cuts to defense and domestic programs are scheduled to take place. After a short period of calm, we can expect more fireworks on Capitol Hill.

USD/JPY for Wednesday, January 23, 2013

USD/JPY January 23 at 13:10 GMT

88.51  H: 88.78 L: 88.06

USD/JPY has leveled off after Tuesday’s huge drop, and continuues to trade in the mid-88 range. There is weak resistance at the 88.55 line. This line was breached earlier on Wednesday, and could continues to face pressure from the pair. The line of  89.31 is stronger. On the downside, 87.95 is providing support, and has held firm since last week. The next support level is at 87.36.

• Current range: 87.95 to 88.55.

Further levels in both directions:

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

OANDA’s Open Position Ratios

The USD/JPY is seeing a reversal in movement, with current activity in the direction of long positions. We are not seeing this ratio movement reflected in the currency pair, with USD/JPY showing little movement after the yen spiked on Tuesday. If the ratio continues to display this movement, we can expect the US dollar to show some improvement against the yen.

The pair has leveled off after its impessive gains on Tuesday. It could shape up to be a quiet day, as there is very little in the way of economic releases on Wednesday.

USD/JPY Fundamentals

• 14:00 US HPI. Estimate 0.7%
• 5:00 Bank of Japan Monthly Report
• 11:50 Japanese Trade Balance. Estimate -0.71T.

*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.