USD/JPY: Yen Shrugs Off Soft Tankan Indices

USD/JPY has posted losses on Friday, as the pair trades slightly above the 112 line in the European session. On the release front, the Japan released the Tankan indices, key gauges of the services and manufacturing sectors. Both indicators softened in the first quarter and missed their estimates.

Japan released the Tankan Manufacturing and Non-manufacturing indices for the first quarter on Thursday, key indicators which are similar to PMI reports. Both indicators lost ground missed their estimates. The Tankan Manufacturing Index slipped to 6 points, its weakest reading since 2013. Analysts attributed the drop to weaker demand for Japanese exports, coupled with a sharp appreciation in the yen. Non-Manufacturing Index followed suit, as domestic spending as dipped. The index dropped to 22 points, its smallest gain in four quarters. The soft readings will undoubtedly raise concerns at the Bank of Japan, which is under pressure to make some monetary moves at its policy meeting in April in order to kick-start the weak economy.

The US economy appears solid, so why did Federal chair Janet Yellen sound so cautious about the US economy in her speech in New York earlier this week? In her speech, she acknowledged the strong US labor market, but spoke of risks to the US economy from uncertainty in the global markets and the slowdown in China. Yellen was likely reacting to recent comments by several Fed members, which were very hawkish in tone, some going as far as calling for a rate hike this month. Left unchecked, these comments would likely have created a fever pitch in the markets about an imminent rate hike. If the Fed failed to deliver at its April policy meeting, the result could have led to strong volatility in the markets. Yellen may have poured cold water on any rate hike enthusiasm in order not to rock the markets over rate hike projections. However, this had created another problem – the Fed appears to be talking with more than one voice and sending out contradictory messages to the markets. Will Yellen’s cautious assessment be reinforced or challenged by Fed members? Public comments from Fed officials will be under the market microscope, and any hints of a rate hike in April or June could send the US dollar sharply higher against its rivals.

USD/JPY Fundamentals

Thursday (March 31)

• 19:50 Tankan Manufacturing Index. Estimate 8. Actual 6 points
• 19:50 Tankan Non-Manufacturing Index. Estimate 24. Actual 24
• 22:00 Japanese Final Manufacturing PMI. Estimate 49.1. Actual 49.1 

Upcoming Key Events

Friday (April 1)

• 8:30 US Average Hourly Earnings. Estimate 0.2%.
• 8:30 US Nonfarm Employment Change. Estimate 206K
• 8:30 US Unemployment Rate. Estimate 4.9% 
• 9:45 US Final Manufacturing PMI. Estimate 51.5
• 10:00 US ISM Manufacturing PMI. Estimate 50.8
• 10:00 US Revised UoM Consumer Sentiment. Estimate 90.6 points
• 10:00 US Construction Spending. Estimate 0.2%
• 10:00 US ISM Manufacturing Prices. Estimate 44.5 points
• 10:00 Revised UoM Inflation Expectations
• All Day  – US Total Vehicles Sales. Estimate 17.6M
• 12:00 US FOMC Member Loretta Mester Speaks

*Key releases are highlighted in bold

*All release times are DST

USD/JPY for Friday, April 1, 2016

USD/JPY April 1 at 7:35 DST

Open: 112.52 Low: 112.04 High: 112.53 Close: 112.19

USD/JPY Technical

• USD/JPY posted losses in the Asian session and has been choppy in European trade
• 112.48 remains fluid and is a weak resistance line
• 111.50 is providing support
• Current range: 111.50 to 112.48

Further levels in both directions:

• Below: 111.50, 109.87 and 108.37
• Above: 112.48, 113.86, 114.65 and 115.59

OANDA’s Open Positions Ratio

USD/JPY ratio remains almost unchanged, consistent with a lack of significant movement from USD/JPY. Long positions command a strong majority (61%), 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.