USD/JPY – Yen Lower, Japanese GDP Next

USD/JPY has posted gains on Tuesday, as the pair trades just below the 109.60 line in the European session. On the release front, it’s a busy day. The US will release key consumer inflation reports as well as Building Permits. Later in the day, Japan publishes Preliminary GDP, with the markets expecting a small gain of 0.1%. On Wednesday, the Federal Reserve will release the minutes of its April policy meeting.

With the Japanese economy facing the threat of deflation and the strong yen hurting exports, speculation has risen that the BoJ will adopt further easing measures in June or July. The BoJ has warned that it could intervene to curb the climb of the high-flying yen, but analysts say that the BoJ is unlikely to make any such moves until after the G7 meeting later in May, which is being hosted by Japan. Japan has tried to “talk down” the yen, with a series of warnings from senior policymakers. On Monday, Masatsugu Asakawa, vice-minister of finance for international affairs, said that Japan is considering intervening to lower the yen’s value, since the high-flying yen poses a significant risk to the stability of the economy. BoJ Governor Haruhiko Kuroda said last week that the BoJ had plenty of room for further easing measures, given that the BoJ has already adopted negative interest rates. Despite strong action from the central bank, inflation levels remain very low. PPI, which measures inflation in the manufacturing sector, continues to post sharp declines, and the April reading of -4.2% was worse than expected.

The Federal Reserve, never far from the financial headlines, will take over center stage on Wednesday with the release of the April minutes. The Fed has sent out the message that a June hike is on the table, but the markets remain skeptical, especially after the weak Nonfarm Payrolls report earlier this month. With the economy showing mixed employment numbers and inflation stuck at low levels, a June hike would be nothing less than a shock, a reason in itself for the Fed to remain on the sidelines. The markets are clearly expecting rates to remain at the current level of 0.25%, with the implied probability of a hike down to just 4%.

The US economy remains generally solid and last week wrapped up on a high note, as retail sales and consumer confidence reports beat expectations. Core Retail Sales posted a strong gain of 0.8%, above the estimate of 0.6%. Retail Sales surged 1.3%, its strongest gain in over six years. The gain was all the more impressive as the markets had anticipated a decline of 0.3%. Consumer confidence also looked sharp, as UoM Consumer Sentiment jumped to 95.8 points, compared to the estimate of 89.9 points. This was the indicator’s best showing since April 2015. On the inflation front, PPI posted a small gain of 0.2%, shy of the forecast of 0.3%. Inflation levels remain weak, and Tuesday’s CPI readings are expected to show weak gains.

USD/JPY Fundamentals

Tuesday (May 17)

• 00:30 Japanese Revised Industrial Production. Estimate 3.6%. Actual 3.8%
• 8:30 US Building Permits. Estimate 1.13M
• 8:30 US CPI. Estimate 0.3%
• 8:30 US Core CPI. Estimate 0.2%
• 8:30 US Housing Starts. Estimate 1.12M
• 9:15 US Capacity Utilization Rate. Estimate 75.1%
• 9:15 US Industrial Production. Estimate 0.3%
• 19:50 Japanese Preliminary GDP. Estimate 0.1%
• 19:50 Japanese Preliminary GDP Price Index. Estimate 1.0%

Upcoming Key Events

Wednesday (May 18)

• 14:00 US FOMC Meeting Minutes

*Key releases are highlighted in bold

*All release times are EDT

USD/JPY for Tuesday, May 17, 2016

USD/JPY May 17 at 6:25 EDT

Open: 109.08 Low: 108.87 High: 109.65 Close: 109.62

USD/JPY Technical

• USD/JPY has showed limited movement in the Asian session. The pair has posted strong gains in European trade
• 108.37 has strengthened in support as USD/JPY has posted strong gains
• 109.87 is a weak resistance line
• Current range: 108.37 to 109.87

Further levels in both directions:

• Below: 108.37, 107.57, 106.19, and 105.18
•  Above: 109.87, 110.66 and 111.30

OANDA’s Open Positions Ratio

USD/JPY ratio is showing little movement on Tuesday. Long positions continue to command a strong majority (61%). This is indicative of strong trader bias towards USD/JPY climbing 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.