USD/JPY has posted considerable gains on Friday, as the dollar continues to move higher. Currently, USD/JPY is trading slightly below the 103 level. On the release front, there are no major releases from Japan or the US. Japanese Tertiary Industry Activity gained 0.3%, close to the estimate of 0.4%. In the US, the sole release on the schedule is Wholesale Inventories, which is expected to post a small gain of 0.1%. With a Fed rate hike again on the agenda, the markets will be listening closely to FOMC member Eric Rosengren, who will speak at an event in Boston.
Japanese numbers sent mixed signals earlier this week. The current account surplus dropped sharply to JPY 1.45 trillion in July, down from 1.65 trillion in the previous release. There was better news from the second quarter Final GDP report, which posted a modest gain of 0.2%. This reading was revised upwards from the preliminary estimate of 0.0%. Year-on-year, GDP in Q2 gained 0.7 percent. However, business investment and exports were down in the second quarter, and without government spending, the economy would have contracted. The government has introduced a major spending package, but the Bank of Japan has opted for the sidelines. The bank cut rates into negative territory earlier in the year, but has had little success in coaxing inflation to higher levels. The BoJ will hold a policy meeting on September 21. Will the bank adopt further easing measures? BOJ Governor Harihuko Kuroda has been mum about what monetary measures are being considered, although lowering rates or expanding the asset-purchase scheme (or some combination) are the most likely routes. In addition to its standard rate announcement, the BoJ has said it will also conduct a “comprehensive review” of its policy at the September meeting, although it has not provided any details on what exactly this means.
It was just a few weeks ago that Fed chair Janet Yellen said that the case in favor of a rate hike had improved, given stronger US data. Ever since that speech in Jackson Hole, the markets have been fixated on the possibility of a rate hike prior to the end of 2016. However, a spate of weak US numbers in the past week has lowered the likelihood of a move by the Fed. The CME FedWatch Tool is showing slim odds for a September move (18%), while a move in December is more likely (40%). Although the US labor market remains close to capacity, many FOMC members will be reluctant to approve a rate hike based solely on strong employment numbers. Consumer spending remains a concern, but the main sticking point is weak inflation levels, which will likely weaken even further if the Fed raises rates. Barring any spectacular data in the next few weeks, it appears a safe bet that the Fed will hug the sidelines in September and revisit the rate issue in December.
Friday (September 9)
- 00:30 Japanese Tertiary Industry Activity. Estimate 0.4%. Actual 0.3%
- 7:45 US FOMC Eric Rosengren Speaks
- 10:00 US Wholesale Inventories. Estimate 0.1%
*All release times are EDT
*Key events are in bold
USD/JPY for Friday, September 9, 2016
USD/JPY September 9 at 8:25 EDT
Open: 102.30 High: 102.88 Low: 101.94 Close: 102.85
- USD/JPY posted small losses in the Asian session and has posted strong gains in European trade
- 102.36 is providing support
- There is resistance at 103.73
- Current range: 102.36 to 103.73
Further levels in both directions:
- Below: 102.36, 101.20, 99.71 and 98.95
- Above: 103.73, 104.99 and 106.38
OANDA’s Open Positions Ratio
USD/JPY ratio is showing little movement on Friday. Currently, long positions have a majority (61%), indicative of trader bias towards USD/JPY continuing to move higher.
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