USD/JPY – Yen Breaks Below 100 After Sharp Japanese Trade Surplus

The Japanese yen has posted slight losses on Thursday, with USD/JPY marked by choppy trading. In the North American session, the pair is trading slightly above the 100 level. On the release front, both Japan and the US recorded positive data. The Japanese trade surplus came in at JPY 0.32 trillion, much higher than the forecast. Over in the US, Philly Fed Manufacturing Index improved to 2.0 points, while Unemployment Claims dipped to 262 thousand, as both indicators beat expectations.

There was good news out of Japan on Thursday, as the country’s July trade surplus was almost unchanged at JPY 0.32 trillion, crushing the estimate of JPY 0.14 trillion. This marked the third straight month that the trade surplus has easily beat estimates. The yen improved after the release, briefly breaking below the 100 level. The yen’s strong performance is a major headache for the government and the BoJ, as a strong yen is bad for exports and is impeding attempts to raise inflation levels. The bank has not taken any significant monetary measures in recent months, which has emboldened market players to continue pushing the dollar lower. If the bank continues to stay on the sidelines, the markets will conclude that the BoJ has given up on further monetary easing, leaving room for the yen to gain further ground.

Those market players confused about Federal Reserve monetary policy should take heart, as apparently the lack of clarity extends to Fed policymakers as well. The Fed minutes from the July meeting indicated that FOMC members are divided on the timing of a rate hike – some want to raise levels soon, as the US labor market approaches full employment, while others expressed concern about making a move with inflation levels well below the target of 2%. This debate will need to be resolved one way or another, as the Fed must make a rate decision next month. Clearly, policymakers will be swayed by economic data, particularly employment and inflation numbers. The news remains bleak on the latter front, as underscored by July’s consumer inflation reports. CPI posted a weak reading of 0.0%, its worst showing in five months. Core CPI dropped to 0.1%, shy of the estimate of 0.2%. Recent data is pointing in all directions, which explains why the Fed is divided over the timing of a rate hike. After a soft GDP report in late July, nonfarm payrolls was stellar. However, this was followed by weak retail sales and CPI numbers. Bottom line? A September hike is virtually off the table, while the odds of a December hike are pegged at 50/50.

USD/JPY Fundamentals

Wednesday (August 17)

  • 19:50 Japanese Trade Balance. Estimate 0.14T. Actual 0.32T

Thursday (August 18)

  • 8:30 US Philly Fed Manufacturing Index. Estimate 1.4. Actual 2.0
  • 8:30 US Unemployment Claims. Estimate 269K. Actual 262K
  • 10:00 US CB Leading Index. Estimate 0.3%. Actual 0.4%
  • 10:05 FOMC Member William Dudley Speaks
  • 10:30 US Natural Gas Storage. Estimate 26B. Actual 22B

*Key events are in bold

*All release times are EDT

USD/JPY for Thursday, August 18, 2016

USD/JPY August 18 at 10:15 EDT

Open: 99.89 High: 100.50  Low: 99.63 Close: 100.23

USD/JPY Technical

S3 S2 S1 R1 R2 R3
97.78 98.95 99.71 101.20 102.36 103.73
  • USD/JPY was choppy in the Asian session. The pair posted gains in European trade and is showing limited movement in the North American session
  • 99.71 is providing weak support
  • There is resistance at 101.20
  • Current range: 99.71 to 101.20

Further levels in both directions:

  • Below: 99.71, 98.95 and 97.78
  •  Above: 101.20, 102.36, 103.73 and 104.99

OANDA’s Open Positions Ratio

USD/JPY ratio is showing gains in long positions. Currently, long positions have a strong majority (68%), indicative of trader bias towards USD/JPY continuing to move to higher 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.

Kenny Fisher

Kenny Fisher

Market Analyst at OANDA
A highly experienced financial market analyst with a focus on fundamental analysis, Kenneth Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities. His work has been published in several major online financial publications including, Seeking Alpha and FXStreet. Based in Israel, Kenny has been a MarketPulse contributor since 2012.