USD/JPY – Yen Dips on Soft Japanese Manufacturing Report

USD/JPY has posted gains in the Tuesday session, erasing the losses at the start of the week. In North American trade, USD/JPY is trading at 113.95, up 0.45% on the day. On the release front, there are no major events on the schedule. Japanese Flash Manufacturing PMI came in at 52.5, missing the estimate of 53.1 points. In the US, the Richmond Manufacturing Index softened to 12 points, well off the forecast of 19 points. This marked its weakest gain since June. On Wednesday, the US will release Core Durable Goods Orders and New Home Sales.

Japanese voters went to the polls on Tuesday, and there were no surprises as Prime Minister Shinzo Abe cruised to an easy victory. Abe’s Liberal Democratic Party and a small junior coalition party won a convincing victory, winning at least 312 seats out of 465 seats in the lower house of parliament. The result gives Abe a two-third majority in both seats of parliament, which will allow him to continue his policies. We can expect to see the ultra-loose monetary policy continue until inflation moves closer to the Bank of Japan’s target of around 2 percent. Although Abe won a decisive victory, his popularity remains low. The LDP took full advantage of a divided opposition which failed to provide the Japanese voter with a credible alternative. The Tokyo stock markets posted gains after the election, but the Japanese yen responded with slight losses.

The guessing game at the Federal Reserve continues, as investors await the next choice for Federal Reserve chair. Janet Yellen’s 3-year term expires in February, and President Trump has said he will nominate a new Fed head in the coming days. The front runners are economist John Taylor and Federal Reserve Governor Jerome Powell. Taylor advocates a rule in which rates which be as high as 3 percent, given current economic conditions. Powell is more closely aligned to Fed Chair Janet Yellen’s monetary stance which advocates an incremental increase in rates. With the two candidates representing sharply differing views on interest rate levels, Trump’s choice for the new Fed chair could have an effect on monetary policy and the strength of the US dollar. Still, most economists are of the view that monetary policy will be largely driven by the performance of the US economy. Inflation levels remain weak and may not reach Fed’s target of 2 percent before 2020, but that has not dampened expectations of a December rate hike. According to CME FedWatch, the odds of a raise in December stand at 96 percent.

USD/JPY Fundamentals

Monday (October 23)

• 20:30 Japanese Flash Manufacturing PMI. Estimate 53.1. Actual 52.5

Tuesday (October 24)

• 9:45 US Flash Manufacturing PMI. Estimate 53.3. Actual 54.5
• 9:45 US Flash Services PMI.  Estimate 55.2. Actual 55.9
• 10:00 US Richmond Manufacturing Index. Estimate 17. Actual 12

Wednesday (October 25)

• 8:30 US Core Durable Goods Orders. Estimate 0.5%
• 10:00 US New Home Sales. Estimate 556K

*All release times are GMT

*Key events are in bold

USD/JPY for Tuesday, October 24, 2017

USD/JPY October 24 at 10:40 EDT

Open: 113.43 High: 113.98 Low: 113.25 Close: 113.95

USD/JPY Technical

USD/JPY ticked downwards in the Asian session. The pair posted gains in European trade and is steady in the North American session

• 113.55 has switched to a support role after gains by USD/JPY on Tuesday
• 114.49 is the next resistance line

Current range: 113.55 to 114.49

Further levels in both directions:

• Below: 113.55, 112.57, 110.94 and 110.10
• Above: 114.49, 115.50 and 116.54

OANDA’s Open Positions Ratios

USD/JPY ratio is showing little movement in the Tuesday session. Currently, short positions have a majority (54%), indicative of trader bias towards USD/JPY reversing directions and losing ground.

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.