USD/JPY – Yen Slumps as 90 Level Back in Sight

After dramatic improvement earlier this week, the Japanese yen is once again on the slide, closing in on the all-important 90 level. The yen lost traction after a disappointing Trade Surplus reading and comments by a senior cabinet member that the Japanese currency could rise to the 100 level.

The yen soared following the Bank of Japan meeting earlier this week, but market sentiment has now soured. As expected, the BOJ announced a new inflation target and announced open ended purchases in the amount of JPY 13 trillion ($145 billion) each month. However, initial market enthusiasm has dissipated, with experts saying the amounts are not large enough and that the purchases should have commenced immediately. As the yen once again approaches the 90 level, Japan’s deputy economy minister stated that the yen could weaken even further. Yasutoshi Nishimura stated that he saw no problem with a yen at the 100 level, although the 110 or 120 range would make imports prohibitively expensive. These statements will do little to placate Japan’s trading partners, which have watched with growing concern the sharp drop in the yen’s value. The Japanese currency has lost over 8 per cent of its value in the past two months.

In economic releases, Japan’s monthly trade deficit disappointed, coming in at JPY 800 billion. Although this was an improvement from the previous reading, it fell well below the market estimate of a JPY 710 billion deficit. The markets will be hoping for better news later on Thursday, as Tokyo Core CPI is released. In the US, the markets will be paying close attention to the Unemployment Claims release, which looked very sharp last week.

It is no simple task to measure the extent of the US economic recovery, especially when US releases point in all directions. Last week’s unemployment claims were outstanding, and retail sales looked sharp. This was offset by weak manufacturing and consumer sentiment data. Both of these sectors continue to weigh on the US economy, making it difficult for the recovery to gain some traction. As well, the most recent housing numbers fell below the estimate. With the US economy continuing to send mixed signals, the uncertainty is likely to be reflected in the currency markets.

USD/JPY for Thursday, January 24, 2013

USD/JPY January 24 at 11:20 GMT

USD/JPY 89.60 H: 89.71 L: 88.42

USD/JPY has risen sharply in Thursday trading. There is resistance at 89.85. This line is protecting the all important 90 level, and be tested if the upward trend continues. There is stronger resistance at 90.23. On the downside, 89.31 is the next support level. With the pair showing volatility, it cannot be considered safe. The next support level is at 88.55.

• 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 has climbed sharply, and we are seeing this movement reflected in the USD/JPY ratio, which is showing strong movement towards long positions. The long positions component now comprises a slight majority of the ratio. If the yen continues to slide, we can expect strong activity to continue in the ratio.

With a fast pace of new developments in Japan, the pair has responded with sharp movements in both directions. Will the volatility continue? The markets are waiting for some important releases later on Thursday, including US Unemployment Claims and the Bank of Japan’s Monetary Policy Meeting Minutes. If there are some suprise developments from these releases, the volatility could continue.

USD/JPY Fundamentals

• 13:30 US Unemployment Claims. Estimate 359K.
• 14:00 US Flash Manufacturing PMI. Estimate 53.2 points.
• 15:00 US CB Leading Index. Estimate 0.4%.
• 15:30 US Natural Gas Storage.
• 16:00 US Crude Oil Inventories. Estimate 2.8M.
• 23:30 Tokyo Core CPI. Estimate -0.5%.
• 23:30 National Core CPI. Estimate -0.2%.
• 23:50 Bank of Japan Monetary Policy Meeting Minutes.

*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.