USD/JPY – Yen Rally Continues, 112 Under Pressure

USD/JPY continues to lose ground this week, as the pair trades slightly above the 112 line in Wednesday’s European session. The yen has rallied, gaining about 150 points since Friday. On the release front, it’s a quiet day in the US, highlighted by Crude Oil Inventories. Japan will release Preliminary Machine Tool Orders and PPI, which measures inflation in the manufacturing sector.

Japanese fundamentals continue to point downwards, indicative of a downturn in economic activity. Japanese Final GDP in the fourth quarter came in at -0.3%, just above the forecast of -0.4%. The current account surplus dropped sharply to JPY 1.49 trillion, well off the estimate of JPY 1.66 trillion. The inflation picture is gloomy, with the threat of deflation a serious possibility. PPI has posted declines for close to a year, and the forecast for the January report stands at -3.4%. These soft numbers have intensified pressure on the BoJ to take further monetary action at its policy meeting later in March. The BOJ took drastic action in January, shocking the markets by adopting negative interest rates. However, this move failed to kick-start the weak economy or blunt the yen’s rise, and a stronger Japanese currency has had a negative impact on the critical export sector. If the BoJ decides to implement additional easing measures, it would likely push the yen to lower levels.

US Nonfarm Payrolls is one of the most important economic indicators, so an excellent January report should have buoyed the US dollar against its major rivals late last week. The indicator impressed with a reading of 242 thousand, much higher than the estimate of 195 thousand. This was much stronger than the previous (revised) reading of 171 thousand. The US economy has added an average of 225,000 jobs per month since December, an impressive number considering that the economy has softened in the early part of 2016. Why then, did a stellar NFP release not impress the markets? The reason was that wage growth, which has consistently lagged behind other employment indicators, surprised the markets with a decline of 0.1% in January, the first drop in wages since December 2014. This indicator is closely linked to inflation, since an increase in wages means workers have more money to spend. The indicator’s decline means that that Federal Reserve’s inflation target of about 2.0% remains far off, so the Fed, which is keeping a close eye on the weak inflation picture, is unlikely to press the rate trigger at its policy meeting later this month.

USD/JPY Fundamentals

Wednesday (March 9)

• 00:59 Japanese Preliminary Machine Tool Orders. Actual -22.6%
• 10:00 US Wholesale Inventories. Estimate -0.2%
• 10:30 US Crude Oil Inventories. Estimate 3.0M
• 13:01 US 10-year Bond Auction
• 18:50 Japanese PPI. Estimate -3.4%

*Key releases are highlighted in bold

*All release times are EST

USD/JPY for Wednesday, March 9, 2016

USD/JPY March 9 at 5:30 EST

Open: 112.69 Low: 112.21 High: 112.73 Close: 112.26

USD/JPY Technical

• 111.50 is a support level
• 112.48 has switched to resistance as USD/JPY has lost ground
• Current range: 111.50 to 112.48

Further levels in both directions:

• Below: 112.48, 111.50, 109.87, and 108.37
• Above: 113.86, 114.65, 115.85 and 116.65

OANDA’s Open Positions Ratio

USD/JPY ratio continues to show little movement this week. Long positions retain a strong majority (62%), indicative of strong trader bias towards the pair reversing directions and moving to higher levels.

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.