USD/JPY – Japanese yen trading sideways, BoJ Inflation misses mark

The Japanese yen has posted slight gains in the Tuesday session. In the North American session, USD/JPY is trading at 111.24, down 0.09% on the day. On the release front, Japanese Flash Manufacturing PMI slipped to 51.6, short of the estimate of 53.2 points. The indicator is at its lowest level since November 2016. On the inflation front, BoJ Core Inflation dipped to 0.4%, shy of the forecast of 0.6%. There are no major U.S events on the schedule. On Wednesday, U.S New Home Sales is forecast to drop sharply to 669 thousand.

The yen has posted slight gains this week and touched a 2-week high in response to a report that the Bank of Japan was considering changes to its monetary policy, in particular, its interest rate targets. This has raised speculation that the Bank could be making plans to reduce its massive stimulus program. Japan’s 10-year yield climbed to 5-month high on Monday in response to the report. If there are further signals from the BoJ that policymakers are considering reducing stimulus, the yen could move higher.

The yen jumped on the bandwagon on Friday, as the U.S dollar was broadly lower after U.S President Trump made comments critical of Federal Reserve monetary policy. U.S presidents traditionally do not comment on moves by the Fed, but that did not prevent Trump from tweeting on Thursday that “tightening now hurts all that we have done”. On the weekend, Treasury Secretary Steven Mnuchin engaged in damage control, saying at the G-20 meeting that Trump was not interfering with the Fed policy of gradually raising rates. However, investors weren’t buying Mnuchin’s apologetics, and the U.S dollar continued to lose ground in Monday’s Asian session. There was more for investors to fret over, as Trump also attacked the EU and China for manipulating their currencies and keeping interest rates lower. This has raised concerns that the current global trade war could be followed by a currency war.  Growing concerns over the dangers of the ongoing trade war were summed up in the final communiqué from the G-20 meeting in Argentina over the weekend, which noted that “heightened trade and geopolitical tensions pose an increased risk to global growth”.

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Monday (July 23)

• 20:30 Japanese Flash Manufacturing PMI. Estimate 53.2. Actual 51.6

Tuesday (July 24)

• 1:00 Japanese BoJ Core CPI. Estimate 0.6%. Actual 0.4%
• 9:00 US HPI. Estimate 0.4%. Actual 0.2%
• 9:45 US Flash Manufacturing PMI. Estimate 55.1. Actual 55.5
• 9:45 US Flash Services PMI. Estimate 56.5. Actual 56.2
• 9:59 US Richmond Manufacturing Index. Estimate 18. Actual 20

Wednesday (July 25)

• 10:00 US New Home Sales. Estimate 669K

*All release times are DST

*Key events are in bold

USD/JPY for Tuesday, July 24, 2018

USD/JPY July 24 at 11:45 DST

Open: 111.34 High: 111.51 Low: 110.96 Close: 111.24

USD/JPY Technical

USD/JPY edged lower in the Asian session. The pair reversed directions and moved higher in the European session and has posted small gains in North American trade

• 111.22 was tested earlier in support. It is a weak line
• 112.30 is the next resistance line

Further levels in both directions:

• Below: 111.22, 110.21 and 109.21
• Above: 112.30, 113.75, 114.73 and 115.51
• Current range: 111.22 to 112.30

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