USD/JPY is enjoying a little renaissance right now with price breaking the 98.0 barrier (98.05 to be exact) during early Asian hours. The move came after the the announcement of a fall in unemployment rate which came in lower than expected, coming in at 3.9% vs an expected 4.0% and 4.1% previous month. Furthermore, Job to Applicant ratio has increased to 0.92, the highest since 2008, suggesting that the improvement in unemployment rate will continue to run. Perhaps it is due to this good news that USD/JPY traded higher, as traders begin to regain trust in BOJ and Abenomics once again. However, it should be noted that Industrial Production actually fell on a both Y/Y and M/M basis, with both numbers coming in worse than expected. So which is the market looking at? Is Yen weaker due to weaker fundamentals, or are traders simply gaining confidence in Abenomics again? We’re purely speculating here, which does not make good analysis material. However, we can look at yesterday’s fundamentals to get a better understanding of things.
Yesterday’s lower than expected Retail Sales figures drove Yen stronger, hence suggesting that confidence in BOJ/Abenomics is continuing to be the main driver in USD/JPY direction. USD strength/weakness play a huge part as well, but as we explored previously, Yen’s strength may be the one that pulled USD lower to begin with. Hence in terms of influence hierarchy, confidence in BOJ/Abenomics still come up tops. Hence, we may see higher USD/JPY whenever stronger Japan economic news come out moving forward.
From a technical perspective, price is reaching the 98.5 round figure resistance. Stochastic readings are also reaching the Overbought region, adding strength to the 98.5 strength. Should 98.5 holds, it is likely that a stochastic indicator may show a bearish cycle signal. This will open up 98.0 as the 1st bearish target, and potentially 97.50 and beyond to extend the 25th July decline.
Daily Chart shows price closing within the Kumo yesterday, with today’s candle using the Senkou Span A as a support. There is a magnetism with regards to the flat Senkou Span B, and hence price may be able to push towards that level (close to 99.0) if price remain above Senkou Span B. Furthermore, Stochastic reading appears to be bottoming out, with Stoch readings crossing the Signal Line and pushing above the 20.0 market, suggesting that a bullish cycle signal may be forming soon, which increases the likelihood of price moving towards 99.0. The forward Kumo remain wide and bullish, which implies that the uptrend since 17th June may still be in play.
Even though this may not fit nicely with the short-term direction analysis which favors bearish momentum, this long-term outlook is actually in line with the broader improving market confidence in BOJ/Abeomics. Economy Minister Amari stated today that there hasn’t been any request for a sales-tax hike impact analysis, subtly implying that Japanese leaders are not truly interested in carrying out a tax hike. If that is true, then we can see long-term trust in Abenomics return, which will do USD/JPY bulls good.