USD/JPY – Yen Slightly Weaker as US Manufacturing Reports Impress

It continues to be an uneventful week for the Japanese yen. In Wednesday’s North American session, USD/JPY is trading at 110.75, up 0.30% on the day. On the release front, Japanese Core Machinery Orders posted a strong gain of 5.7%, well above the estimate of -1.1%. Industrial Production accelerated to 0.9%, crushing the estimate of 0.4%. Later in the day, Japan releases Revised Industrial Production, which is expected to edge up to 0.6%. In the US, manufacturing numbers looked sharp. Capacity Utilization improved to 77.9%, beating the estimate of 77.3%. This marked the highest level since July 2014. On Thursday, there are a host of key indicators out of the US, led by Building Permits and unemployment claims.

Japan’s economy continues to gains steam, buoyed by a strong export sector and increased consumer spending. The positive trend has elicited bullish comments from the cautious Bank of Japan. On Monday, BoJ Governor Haruhiko Kuroda sounded optimistic about the economy and inflation, and the Japanese yen responded by climbing to a 4-month high. Kuroda said that core CPI had improved to about 1 percent, and said that the BoJ expected the economy to “continue expanding moderately”. This was a much more favorable prognosis compared to October 2016, when Kuroda stated that inflation was around zero. Although Kuroda reiterated that the BoJ will maintain its massive stimulus program, a stronger Japanese economy has raised speculation that the Bank could follow the ECB and reduce its asset purchase program, which would likely strengthen the Japanese yen. The BoJ’s quarterly report was also optimistic about inflation, stating that stronger growth would raise inflation closer to the BoJ’s target of around 2 percent.

The markets are keeping one eye on the Federal Reserve, which holds its next policy meeting on January 31. A rate hike is a virtual certainty, with CME Fed Watch pegging the odds of a quarter-point hike at 98.5%. Although this means that a rate hike has been priced in by the markets, the dollar could nevertheless gain ground after a hike, as a rate increase would signify an important vote of confidence in the economy by the Fed Reserve. If the US economy continues to expand at a clip of around 3 percent, there is a strong likelihood of another rate hike in the first half of 2018.

USD/JPY Fundamentals

Tuesday (January 16)

  • 18:50 Japanese Core Machinery Orders. Estimate -1.1%. Actual 5.7%

Wednesday (January 17)

  • 9:15 US Capacity Utilization Rate. Estimate 77.3%. Actual 77.9%
  • 9:15 US Industrial Production. Estimate 0.3%
  • 10:00 US NAHB Housing Market Index. Estimate 73
  • 14:00 US Beige Book
  • 16:00 US TIC Long-Term Purchases. Estimate 50.1B
  • 16:30 US FOMC Member Loretta Mester Speaks
  • 22:45 Japanese 30-year Bond Auction
  • 23:30 Japanese Revised Industrial Production. Estimate 0.6%

Thursday (January 18)

  • 8:30 US Building Permits. Estimate 1.29M
  • 8:30 US Housing Starts. Estimate 1.28M
  • 8:30 US Philly Fed Manufacturing Index. Estimate 24.9
  • 8:30 US Unemployment Claims. Estimate 250K

*All release times are GMT

*Key events are in bold

USD/JPY for Wednesday, January 17, 2018

USD/JPY January 17 at 8:35 EDT

Open: 110.47 High: 110.93 Low: 110.19 Close: 110.75

USD/JPY Technical

S3 S2 S1 R1 R2 R3
108.21 109.11 110.10 111.53 112.57 113.55

USD/JPY edged higher in the Asian session and was flat in European trade. The pair is showing little movement early in North American trade

  • 110.10 is providing support
  • 111.53 is the next resistance line

Current range: 110.10 to 111.53

Further levels in both directions:

  • Below: 110.10, 109.11 and 108.21
  • Above: 111.53, 112.57, 113.55 and 114.59

OANDA’s Open Positions Ratios

USD/JPY ratio continues to show little movement this week. Currently, long positions have a majority (62%), indicative of trader bias towards USD/JPY continuing to move lower.

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

Currency Analyst at Market Pulse
Kenny Fisher joined OANDA in 2012 as a Currency Analyst. Kenny writes a daily column about current economic and political developments affecting the major currency pairs, with a focus on fundamental analysis. Kenny began his career in forex at Bendix Foreign Exchange in Toronto, where he worked as a Corporate Account Manager for over seven years.