USD/JPY – Yen Steady to Start Off Week

USD/JPY has posted slight gains on Monday, reversing the gains seen in the Friday session. In the European session, USD/JPY is trading at 108.40. On the release front, The US will release the NAHB Housing Market Index, with little change expected. As well, New York Fed president William Dudley will deliver remarks at a meeting in New York. There are no Japanese releases on Monday. On Tuesday, the US releases Building Permits, and Japan will publish Trade Balance.

The yen has surged some 10 percent since the start of February, and if the trend continues, we could see USD/JPY fall to 105 or even lower. The currency’s huge appreciation has become a major headache for BoJ, as a more expensive yen has weakened demand for Japanese exports. This is bad news for a weak economy that is also facing soft domestic demand. The Japanese government has fought back, and recently sent warnings about possible intervention currency invention in order to curb the yen and combat “currency manipulations”. Still, tough talk will likely not be enough to stem the upward trend against speculators who are eyeing the possibility of a yen at 100. Investors have flocked to the safe-haven yen, seeking shelter from a turbulent and uncertain economy. Despite the yen’s impressive upswing in 2016, the currency is widely considered as undervalued against the dollar.

A weak Japanese economy continues to put strong pressure on the Bank of Japan to take additional monetary action. The BoJ cannot 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. Despite these moves by the central bank, growth and inflation levels have not improved. 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 April. Will the central bank adopt further easing measures at its meeting or is the monetary tool box empty?

The US economy continues to perform well, despite some weak sectors, such as the manufacturing industry. US manufacturers continue to face stiff competition with countries that pay much lower wages, such as China, India, and other Asian countries. With turbulent global economic conditions leading to weaker demand, the manufacturing sector is facing additional challenges. There was some positive news on Friday, as the Empire State Manufacturing Index climbed 9.6 points in April, crushing the estimate of 2.1 points. It was the indicator’s highest level since January 2015. We’ll get a look at the Philly Fed Manufacturing Index, a key manufacturing report, on Thursday.

USD/JPY Fundamentals

Monday (April 18)

• 8:30 US FOMC Member William Dudley Speaks
• 10:00 US NAHB Housing Market Index. Estimate 59 points

Upcoming Key Events

Tuesday (April 19)

• 8:30 US Building Permits. Estimate 1.20M

*Key releases are highlighted in bold

*All release times are DST

USD/JPY for Monday, April 18, 2016

USD/JPY April 18 at 6:45 DST

Open: 108.06 Low: 107.83 High: 108.50 Close: 108.42

USD/JPY Technical

• USD/JPY was flat for most of the Asian session and has posted slight gains in European trade
• There is resistance at 109.87
• 108.37 remains fluid and is a weak support line. This line could see further action during the day
• Current range: 108.37 to 109.87

Further levels in both directions:

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

OANDA’s Open Positions Ratio

USD/JPY ratio shows long positions with a strong majority (65%). This is indicative of strong trader bias towards the pair continuing to climb higher.

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.