USD/JPY – Yen Pauses After Gains, Fed Minutes Next

USD/JPY is showing little movement in the Wednesday session, after starting the week with losses. In North American trade, USD/JPY is trading at 112.37, up 0.07%. On the release front, the first major US indicator in 2018 pointed higher. ISM Manufacturing PMI improved to 59.7, beating the forecast of 58.3 points. This marked a 3-month high. Today’s key event is the release of the Fed minutes from the December meeting. On Thursday, the focus is on employment numbers, with the release of ADP Nonfarm payrolls and unemployment claims. On Friday, we’ll get a look at wage growth and US Nonfarm Payrolls.

As we begin the New Year, what can investors expect from the Bank of Japan? BoJ Governor Haruhiko Kuroda has generally stuck to his script that the Bank will maintain its massive stimulus program until inflation rises, but there have been subtle hints form Kuroda that he could change course, if the economic rebound which marked 2017 continues. The stimulus program has failed to lift inflation above 1%, well below the BoJ inflation target of around 2%. Some analysts expect a ‘stealth tapering’, whereby the BoJ would reduce asset purchases and tighten policy, but in small, incremental steps. In this way, the BoJ could change its monetary stance, while minimizing market volatility.

The Federal Reserve will be on center stage on Wednesday, with the release of the minutes of the December policy meeting. At that meeting, the Fed raised rates by 25 basis points, to a range between 1.25-1.50%. The hike marks a vote of confidence in the US economy, and if the minutes are hawkish, the US dollar could gain ground. The economy is expanding at an impressive clip of above 3 percent. If this pace continues, the Fed could raise rates up to four times in 2018. Currently, the CME Group has priced in a January rate hike at 98.5%. Despite the rosy economic conditions, inflation has been chronically soft, well below the Fed target of 2 percent. Outgoing Fed Chair Janet Yellen and other FOMC members have said that they expect that the strong labor market will push up wages and trigger higher inflation, but this is yet to happen.

USD/JPY Fundamentals

Wednesday (January 3)

• 10:00 US ISM Manufacturing PMI. Estimate 58.3. Actual 59.7
• 10:00 US Construction Spending. Estimate 0.6%. Actual 0.8%
• 10:00 US ISM Manufacturing Prices. Estimate 64.8. Actual 69.0
• 14:00 US FOMC Meeting Minutes
• 19:30 Japanese Final Manufacturing PMI. Estimate 54.2

Thursday (January 4)

• 8:15 US ADP Nonfarm Employment Change. Estimate 191K
• 8:30 US Unemployment Claims. Estimate 241K

*All release times are GMT

*Key events are in bold

USD/JPY for Wednesday, January 3, 2018

USD/JPY January 3 at 11:05 EDT

Open: 112.29 High: 112.50 Low: 112.17 Close: 112.37

USD/JPY Technical

USD/JPY showed limited movement in the Asian and European sessions. The pair has posted small gains in North American trade

• 111.53 is providing support
• 112.57 is under pressure in resistance. This line could be tested in the North American session

Current range: 111.53 to 112.57

Further levels in both directions:

• Below: 111.53, 110.10 and 109.11
• Above: 112.57, 113.55, 114.59 and 115.50

OANDA’s Open Positions Ratios

USD/JPY ratio is unchanged in the Wednesday session. Currently, long and short positions are evenly split, indicative of a lack of trader bias as to what direction USD/JPY takes next.

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.