USD/JPY: Yen Hits 5-Week High on Japanese Inflation Data

USD/JPY continues to improve, as the pair trades in the mid-101 range late in Friday’s European session. The yen received a boost from solid Japanese inflation numbers in May. As well, Retail Sales easily beat the estimate, although the indicator posted a second straight decline. The news wasn’t all good as Household Spending dropped sharply last month. In the US, today’s major event is Revised UoM Consumer Sentiment, with the markets expecting another strong reading in May. There are no Japanese releases on Friday.

US Unemployment Claims didn’t show much change last week, continuing the trend which has characterized the key indicator in the month of June. Thursday’s reading came in indicator came in at 312 thousand, slightly better than the estimate of 314 thousand. Earlier in the week, US GDP shocked the markets with a five-year low and durables softened as well. GDP dropped by 2.9%, much worse than the 1.8% loss expected by the markets. Core Durable Goods Orders declined by 0.1%, its first decline in five months. The estimate stood at 0.3%. Durable Goods Orders looked even worse, coming in at -1.0%, shy of the estimate of -0.1%.

In Japan, inflation indicators continued to shine, reinforcing Prime Minister Shinzo Abe’s statement earlier in the week that deflation, which had hobbled the economy for some 15 years, had ended. Tokyo Core CPI posted a 2.8% gain, while National Core CPI jumped 3.2%, as both indicators matched expectations. This follows the Corporate Services Price Index which posted a strong gain of 3.6%, well above the estimate of 3.2%. Meanwhile Retail Sales dipped -0.4%, but this was much better than the estimate of -1.9%. Household Spending, an important consumer spending indicator, plunged by 8% last month, its third decline in four readings. The estimate stood at -1.9%.

Early in the week, BOJ Governor Kuroda said the central bank’s quantitative and qualitative easing policy was achieving its goals and gave no indication about any plans to change current monetary policy. Kuroda noted that growth had improved and deflation curbed, but that inflation was around 1%, well short of the target of 2%. The BOJ had hoped to reach its inflation target by 2015, but Kuroda acknowledged that this goal would take longer, and pledged that the BOJ would continue its current stance of large-scale monetary easing until the inflation target was reached. This means that we could see USD/JPY continue to trade at high levels for quite some time.

USD/JPY for Friday, June 27, 2014

USD/JPY June 27 at 11:50 GMT

USD/JPY 101.38 H: 101.65 L: 101.32

USD/JPY Technical

• USD/JPY posted modest losses in the Asian session. The pair is unchanged in European trading.
• 102.53 is a strong resistance line.
• On the downside, 101.19 is under pressure. Will the pair break below this barrier? The next support level is the round number of 100, which has held firm since November.
• Current range: 101.19 to 102.53

Further levels in both directions:

• Below: 101.19, 100.00, 99.57 and 98.97
• Above: 102.53, 103.07, 104.17 and 105.70

OANDA’s Open Positions Ratio

USD/JPY ratio is pointing to gains in long positions, after almost no change this week. This is not consistent with the movement of the pair, as the yen continues to gain ground. The ratio is made up of a majority of long positions, indicating trader bias towards the dollar moving to higher levels.

USD/JPY Fundamentals

• 13:55 US Revised UoM Consumer Sentiment. Estimate 82.2 points.
• 13:55 US Revised UoM Inflation Expectations.

*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.