USD/JPY – Reverses Course as Yen Loses Ground

The Japanese yen continues to have a busy April. USD/JPY almost touched the 100 mark last week, but then retracted to lower ground. The pair is again on the move up, trading close to the 98 line in Tuesday’s European session. Bank of Japan governor Haruhiko Kuroda urged  the government to take steps to reduce public spending and the country’s huge debt. There are two key events in the US today – Building Permits and Core CPI. There are no Japanese releases on Tuesday.

BOJ Governor Kuroda was busy on the speaker circuit Monday. While addressing the Japanese parliament, Kuroda said that the government must get its spending under control and needs to raise more revenue. He supported the government’s plan to raise the sales tax from 5% to 8%, saying it will help reduce Japan’s debt. Currently, the debt stands at more than $10 trillion, more than double the size of the economy. With the BOJ and Prime Minister Abe determined to stamp out deflation, the country’s aggressive monetary policy is likely to push down the yen, and we could see the currency break the elusive 100 level. The BOJ has already commenced buying Japanese government bonds, and plans to purchase 7.5 trillion yen each month.   

What is wrong with the US? The country has produced several weeks of poor releases, underscored by four key readings on Friday, all of which missed their estimates. After strong employment numbers on Thursday, there was hope that the US would rebound, but the wheels fell off the cart on Friday. Core Retail Sales and Retail Sales both declined by 0.4%. PPI dropped 0.6%, and UoM Consumer Sentiment came in at 72.3 points, way off the estimate of 79.1 points. The alarm bells may not have gone off just yet, but the continuing weak numbers are raising concerns about the extent of the US recovery. The markets will be hoping for better news from Tuesday’s numbers. 

The Cyprus bailout agreement has been signed, but is the crisis really over? Eurogroup finance ministers met last Friday and approved a EUR 10 billion loan to Cyprus. Under the agreement, Cyprus will have to kick in EUR13 billion. Back in March, Cyprus was only supposed to add another EUR 7 billion. However, the deal collapsed after Cyprus balked at taxing every bank deposit in the country following a huge outcry on the island. Cyprus president Nicos Anastasiades said he will ask the EU for more help, but it not clear if Cyprus is asking additional bailout funds or funds in another form. The bailout agreement calls for huge taxes on deposits over EUR 100,000. Depositors in the Bank of Cyprus will lose between 37.5% and 60%, while depositors in Laiki Bank could lose up to 80%. Under the bailout agreement, Cyprus must restructure its banking sector and impose austerity measures. Even with the bailout, the economy is in for a rough time. Analysts estimate that the country’s GDP will shrink by 13% in 2013 and 2014.

USD/JPY for Tuesday, April 16, 2013

USD/JPY 97.88 H: 97.90 L: 9659

USD/JPY Technical

In Tuesday trading, USD/JPY has moved upwards, and is testing the 98 level. The pair is facing resistance at the 98.45 line. There is stronger resistance at 99.57, which is protecting the 100 level . On the downside, 97.24 continues to provide support. This is followed by a support level at 96.03.

• Current range: 97.24 to 98.45

Further levels in both directions:

• Below: 97.24, 96.03, 95.27 and 94.59
• Above: 98.45, 99.57, 100, 100.54 and 101.81

OANDA’s Open Position Ratios

USD/JPY is pointing to movement in the direction of long positions. This activity is reflected in the current upward trend of the pair, as the dollar has improved. A strong majority of the open positions in the ratio are long, indicating that trader sentiment is biased towards USD/JPY continuing to push upwards.

The yen is once again losing ground, and we could see USD/JPY break through the 98 barrier. With some key US data due later today, we could see some volatility from the pair, if there are any unexpected readings.

USD/JPY Fundamentals

• 12:00 US FOMC Member William Dudley Speaks
• 12:30 US Building Permits. Estimate 0.94M
• 12:30 US Core CPI. Estimate 0.2%
• 12:30 US CPI. Estimate 0.0%
• 12:30 US Housing Starts. Estimate 0.93M
• 13:15 US Capacity Utilization Rate. Estimate 78.4%
• 13:15 US Industrial Production. Estimate 0.3%
• 14:00 US Treasury Secretary Jack Lew Speaks
• 16:00 US FOMC Member Elizabeth Duke Speaks
• 19:00 US FOMC Member Janet Yellen Speaks
• 19:00 US Treasury Secretary Jack Lew Speaks

*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.