USD/JPY – Yen Settles Down After Recent Gains

USD/JPY has settled down after the yen’s sharp rise in Tuesday trading. The pair is trading in the mid-96 range in Wednesday’s European session. In economic news, Japanese Core Machinery Orders posted a larger decline than expected, while the Corporate Goods Price Index posted its first reading above zero in over a year. There are three releases out of the US, although none are key events. Today’s only Japanese release is the BOJ Monthly Report.

On Tuesday, the BOJ released a monetary policy statement, and the tone was optimistic. The BOJ said the Japanese economy was picking up speed, and that it would continue to maintain current monetary policy. Underscoring this point, the central bank voted unanimously to maintain its pledge of increasing cash and deposits in the BOJ by 60- 70 trillion yen annually. However, Japanese equities dropped as the markets were disappointed that no measures were announced to deal with volatility in the bond market. The yen improved sharply as nervous investors sought the safety of the Japanese currency and dumped their stocks.

Japanese manufacturing releases looked sluggish on Tuesday. Preliminary Machine Tool Orders declined 7.4%, while Core Machinery Orders slumped, dropping 8.8%. There was some good news, as CGPI finally pointed to inflation, rising by 0.6%. This was shy of the estimate of 0.7%, but significantly, this marked the first time since April 2012 that the indicator was above zero. If additional inflation indicators point to more inflation in the economy, it will be a good indication that the government’s aggressive monetary policy is finally achieving results.

Taking a look at the US, there was some good news from the S&P ratings agency on Monday, as the well-respected firm revised the US sovereign credit rating from negative to stable. This is an important vote of confidence in the US economy, and means that there is less than a 1 in 3 chance of another downgrade in the next two years. S&P noted that a key factor in its revision was the agreement reached in the US Congress which averted the fiscal cliff crisis, which would have led to $600 billion in automatic tax increases and spending cuts and could have pushed the fragile US economy into recession. In 2011, S&P cut the US credit rating from AAA to AA, and the threat of another downgrade has been a concern of the markets. This development will likely improve market sentiment and could give a boost to the US dollar.

USD/JPY for Wednesday, June 12, 2013

USD/JPY 96.59 H: 96.65 L: 96.35

USD/JPY Technical

USD/JPY has settled down on Wednesday, and the proximate support and resistance lines remain in place (S1 and R1 above). The pair continues to receive support at 96.03, which is protecting the 96 level. This is followed by support at 94.91. On the upside, the pair is facing resistance at 97.18. This is followed by resistance at 98.94, just shy of the round number of 99. Will the pair move closer to the 97 line or will we see the yen continue to strengthen?

• Current range: 96.03 to 97.18

Further levels in both directions:

• Below: 96.03, 94.91, 94.02 and 92.73
• Above: 97.18, 98.94, 99.57, 100.00 and 100.66

OANDA’s Open Positions Ratio

USD/JPY ratio is back in action after a lull on Tuesday. The ratio is pointing to movement towards long positions. If the pair continues to show strong movement, we can expect an increase in activity from the ratio.

The yen has quieted down, as the pair trades in the mid-96 range. We could see the lack of activity continue during the day, as there are no major releases until Thursday.

USD/JPY Fundamentals

• 5:00 Bank of Japan Monthly Report
• 14:30 US Crude Oil Inventories. Estimate -1.4M.
• 17:00 US 10-year Bond Auction.
• 18:00 US Federal Budget Balance. Estimate -110.2B.

*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.