USD/JPY has steadied in the Wednesday session, after posting losses on Tuesday. In North American trade, the pair is trading at 108.82, up 0.01% on the day. Earlier in the day, the yen dropped to a low of 108.45, close to its lowest level since April. On the release front, the ISM Non-Manufacturing PMI improved to 55.3, but fell short of the forecast of 55.8 points. In Japan, the sole event on the schedule is the 30-year bond auction. On Thursday, the US releases employment claims, and Japan will publish Final GDP.
The yen has gained ground courtesy of the ongoing North Korean crisis, as the safe-haven asset has been in demand following missile launches by North Korea, which has raised tensions in the area. The yen improved sharply on Tuesday, following North Korea’s announcement that it had exploded a hydrogen bomb which could be fitted to an intercontinental ballistic missile. US President Trump responded by announcing that he would increase weapon sales to Japan and South Korea and on Wednesday, South Korea’s President Moon Jae-in warned that the situation risked becoming “uncontrollable”. As tensions between Washington and Pyongyang have increased, the drop in risk appetite is driving investors to the safe-haven yen. If the situation continues to deteriorate, traders can expect the Japanese currency to continue to gain ground.
Despite years of radical monetary policy, the Bank of Japan has been unable to subdue deflation, which continues to grip the economy. BoJ Governor Haruhiko Kuroda has insisted that he will not alter monetary policy until inflation hits the bank’s level of 2%, but critics are becoming increasingly impatient with the inflexibility in the BoJ’s stance. On Monday, former BoJ board member Takahide Kiuchi said the BoJ must make changes to its radical stimulus. Kiuchi called on the central bank to be more flexible with its inflation target, and also warned that the bank needed to taper its annual asset purchases to 45 JPY trillion, otherwise the current purchases of JPY 60 trillion would hit the ceiling in mid-2018. Critics of the BoJ’s stimulus experiment have long warned that the BoJ is running out of ammunition in its monetary policy arsenal, and have said that the BoJ must bite the bullet sooner or later and wind down its stimulus program.
US employment numbers were anything but impressive last week, as nonfarm payrolls tumbled to 156 thousand and wage growth slowed to just 0.1%. The soft numbers weren’t lost on the Federal Reserve, as FOMC member Leal Brainard weighed in interest rate policy on Tuesday. Brainard noted that inflation remained “well short” of the Fed’s target of 2%, and urged the Fed to act cautiously and resist raising interest rates until inflation moves higher. Brainard did acknowledge the rebound in the US economy, saying that the economy was on “solid footing”. A December rate hike remains very much in doubt, with odds of an increase at just 30%. With the likelihood of a rate hike pegged at less than 2% at next week’s policy meeting, the markets will be focusing on the Fed’s balance sheet, which stands at $4.2 trillion. Earlier in the year, the Fed outlined plans to reduce the balance sheet, and analysts expect further details at the September meeting.
Wednesday (September 6)
- 8:30 US Trade Balance. Estimate -44.6B. Actual -43.7B
- 9:45 US Final Services PMI. Estimate 56.8. Actual 56.0
- 10:00 US ISM Non-Manufacturing PMI. Estimate 55.8. Actual 55.3
- 14:00 US Beige Book
- 23:45 Japanese 30-y Bond Auction
Upcoming Key Events
Thursday (September 7)
- 8:30 US Unemployment Claims. Estimate 245K
*All release times are GMT
*Key events are in bold
USD/JPY for Wednesday, September 6, 2017
USD/JPY September 6 at 11:00 EDT
Open: 108.81 High: 109.17 Low: 108.45 Close: 108.82
In the Asian session, USD/JPY edged lower but recovered. The pair posted small gains in European trade and continues to move in the North American session
- 108.69 was tested in support earlier. It could break in the North American session
- 110.10 is the next resistance line
Current range: 108.69 to 110.10
Further levels in both directions:
- Below: 108.69, 107.49 and 106.28
- Above: 110.10, 110.94, 112.57 and 113.55
OANDA’s Open Positions Ratios
USD/JPY ratio remains unchanged this week. In the Wednesday session, long positions have a majority (63%), indicative of trader bias towards USD/JPY breaking out and moving higher.