USD/JPY – Japanese Yen Dips after GDP Contracts

The Japanese yen is trading sideways in the Wednesday session, after losing ground on Tuesday. In the North American session, USD/JPY is trading at 110.27, down 0.08% on the day. On the release front, Japanese Preliminary GDP contracted 0.2%, missing the estimate of 0.0%. Japanese Industrial Production dropped to 1.4%, above the estimate of 1.2%. In the US, construction numbers were mixed. Building Permits remained steady at 1.35 million, matching the forecast. Housing Starts dropped to 1.29 million, short of the estimate of 1.32 million. Later in the day, Japan releases Japanese Core Machinery Orders, with the markets braced for a sharp decline of 2.9%. On Thursday, the U.S releases Philly Fed Manufacturing Index and unemployment claims. Japan will publish National Core CPI.

In the U.S, retail sales and core retail sales posted gains in April, although both indicators fell short of the estimates. Still, consumer spending is improving after a sluggish first quarter. Investors liked what they saw, and the US dollar was broadly higher on Tuesday. At the same time, a new concern is higher gas prices, which could put a dent in consumers’ wallets and hurt spending. Oil prices have hit their highest levels in over 3 years, and with the US leaving the Iran nuclear deal and escalating tensions in the Middle East, gasoline prices could remain at high levels.

The Bank of Japan, always a cautious player, will not be exiting from its exiting from its radical stimulus anytime soon. However, BoJ policymakers are looking to raise bond yields as part of normalizing policy. Any moves will be small and incremental in nature, in order not to rattle the markets or the yen exchange rate. The bank took one such step in April, when it removed a deadline for hitting its inflation target of around 2 percent. The stimulus program was introduced in 2013, when BoJ Governor Kuroda claimed that he would reach the inflation target within two years. Fast forward to 2018, and the inflation target remains elusive, despite trillions of yen in stimulus. A stronger Japanese economy will make it easier for the BoJ to depart its radical easing policy, but traders should be prepared for small, incremental steps towards this end.

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USD/JPY Fundamentals

Tuesday (May 15)

• 19:50 Japanese Preliminary GDP. Estimate 0.0%. Actual -0.2%
• 19:50 Japanese Preliminary GDP Price Index. Estimate 0.3%. Actual 0.5%

Wednesday (May 16)

• 00:30 Japanese Revised Industrial Production. Estimate 1.2%. Actual 1.4%
• 8:30 US Building Permits. Estimate 1.35M. Actual 1.35M
• 8:30 US FOMC Member Raphael Bostic Speaks
• 8:30 US Housing Starts. Estimate 1.32M. Actual 1.29M
• 9:15 US Capacity Utilization Rate. Estimate 78.4%. Actual 78.0%
• 9:15 US Industrial Production. Estimate 0.6%. Actual 0.7%
• 10:00 US Mortgage Delinquencies. Actual 4.63%
• 10:30 US Crude Oil Inventories. Estimate -1.1M. Actual -1.4M
• 19:50 Japanese Core Machinery Orders. Estimate -2.9%

Thursday (May 17)

• 8:30 US Philly Fed Manufacturing Index. Estimate 21.1
• 8:30 US Unemployment Claims. Estimate 219K
• 19:30 Japanese National Core CPI. Estimate 0.8%

*All release times are DST

*Key events are in bold

USD/JPY for Wednesday, May 16, 2018

USD/JPY May 16 at 11:30 DST

Open: 110.35 High: 110.39 Low: 110.04 Close: 110.27

USD/JPY Technical

USD/JPY showed little movement in the Asian session. The pair inched lower in the European session and has recovered in North American trade

• 110.11 was tested earlier in support and is a weak line
• 111.22 is the next resistance line

Further levels in both directions:

• Below: 110.11, 108.89, 108.00 and 107.29
• Above: 111.22, 112.06 and 113.39
• Current range: 110.11 to 112.22

OANDA’s Open Positions Ratios

USD/JPY ratio is unchanged in the Wednesday session. Currently, long positions have a majority (58%), indicative of trader bias towards USD/JPY reversing directions and moving higher.

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.