USD/JPY – Yen Edges Higher After Japan Hints at Currency Intervention

USD/JPY has posted slight gains on Tuesday, as the pair trades at 108.30 in the European session. On the release front, Japanese Preliminary Machinery Tools posted a sharp decline of 21.2%. Later, Japan releases PPI, which measures inflation in the manufacturing sector. The markets are expecting a weak reading of -3.5%. There are no major US releases on Tuesday. We’ll get a look at some key US data on Wednesday, with the release of retail sales reports and PPI.

The Japanese yen has sparkled, surging over 400 points against the greenback in April. With experts saying the currency could drop to 105 or lower, the Japanese government has sent out warnings about possible intervention to slow down the yen’s huge appreciation, which has hurt the export sector. On Sunday, Chief Cabinet Secretary Yoshihide Suga said that although Japan would adhere to the Group of 20’s agreement to avoid competitive devaluations, this did not preclude Japan from intervening against “manipulation of currencies”. The yen has jumped 10 percent in 2016, and despite the tough intervention talk, the upward trend could continue, as the safe-haven yen remains attractive to investors in a turbulent global economy. As well, an OECD report noted that the yen remains undervalued against the US dollar.

With the Japanese economy struggling, the Bank of Japan remains under pressure to take additional monetary action. The BoJ can’t be blamed for a lack of effort, as the central bank took radical action in January, adopting negative interest rates for the first time in its history. Still, the economy didn’t responded as hoped, and inflation levels have not improved despite the easing moves taken by the BoJ. If the markets feel that the BoJ has no more monetary easing ammunition left, the yen could continue to strengthen. The next BoJ policy meeting takes place at the end of the month. Will the central bank adopt further easing measures or is the monetary tool box empty?

The Federal Reserve has dampened recent enthusiasm about an imminent rate hike. In recent comments, Fed chair Janet Yellen acknowledged that although domestic growth was steady, the US economy remained prone to risks due to turbulent conditions in the global economy. New York Federal Reserve president William Dudley reiterated Yellen’s message, saying that the Fed must approach future rate hikes with caution. The Fed released the minutes of its March policy meeting last week, and the tone was more dovish than expected, although some members did express support for an April hike. The minutes also pointed to a split as to whether the recent pickup in inflation will continue. Higher inflation levels would increase the likelihood of a rate hike in June. Most analysts are expecting no more than two rate hikes in 2016, although stronger than expected economic data could change this forecast.

USD/JPY Fundamentals

Monday (April 11)

• 19:50 Japanese Bank Lending. Actual 2.0%

Tuesday (April 12)

• 2:00 Japanese Preliminary Machine Tool Orders. Actual -21.2%
• 6:00 US NFIB Small Business Index. Estimate 93.9
• 8:30 US Import Prices. Estimate 1.0%
• 14:00 US Federal Budget Balance. Estimate -106.5B
• 19:50 Japanese M2 Money Stock. Estimate 3.1%
• 19:50 Japanese PPI. Estimate -3.5%

Upcoming Key Events

Wednesday (April 13)

• 8:30 US Core Retail Sales. Estimate 0.4%
• 8:30 US PPI. Estimate 0.3%
• 8:30 US Retail Sales. Estimate 0.1%

*Key releases are highlighted in bold

*All release times are DST

USD/JPY for Tuesday, April 12, 2016

USD/JPY April 12 at 5:45 DST

Open: 108.29 Low: 107.62 High: 108.32 Close: 108.15

USD/JPY Technical

• USD/JPY posted slight gains in the Asian session but has leveled off in European trade
• 107. 57 is providing support
• 108.37 remains a weak resistance line
• Current range: 107.57 to 108.37

Further levels in both directions:

• Below: 107.57, 106.25 and 105.19
•  Above: 108.37, 109.87, 110.66 and 111.50

OANDA’s Open Positions Ratio

USD/JPY ratio has shown little movement this week. Long positions command a strong majority (67%), indicative of strong trader bias towards the pair reversing directions and moving upwards.

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.