USD/JPY – Yen edges higher as investors search for cues

The Japanese yen has posted slight gains in the Monday session. In North American trade, the pair is trading at 111.00, down 0.22% on the day. It’s a quiet start to the week, with no Japanese or U.S events. On Tuesday, the U.S releases CB Consumer Confidence.

Japanese inflation numbers in July were slightly softer than expected. National Core CPI remained pegged at 0.8%, shy of the estimate of 0.9%. The Services Producer Price Index edged lower to 1.1%, missing the estimate of 1.2%. Despite an ultra-accommodative monetary policy, inflation remains well below the BoJ target of just below 2 percent. Rather than reduce the inflation target, the Bank will likely postpone yet again the timeline for its 2% target to fiscal year 2020 or beyond. Massive quantitative and qualitative easing have failed to coax inflation higher, so policymakers may have to consider other means of fiscal easing in order to encourage more spending and push inflation higher.

The Federal Reserve monetary policy has been one of gradual rate increases, as the U.S economy continues to expand. The Fed stance can be summed up as “proceed with caution”. Fed Chair Jerome Powell reiterated this position, with a dovish speech at the Jackson Hole Economic Symposium on Friday. However, the Fed has faced criticism about its current policy from both sides. Some analysts have argued that the Fed has been too aggressive, given weak inflation, while others say the Fed should tighten more quickly, due to the extremely tight labor market. Powell appeared to take a middle approach of raising rates, but slowly. The Fed has already raised rates twice this year, and a September hike is practically a given, with the CME Group estimating the odds of a hike at 96%. The odds of a December hike currently stand at 66%.

Powell, Puppets and Politics

USD/JPY Fundamentals

Monday (August 27)

• There are no Japanese or U.S events

Tuesday (August 28)

• 10:00 US CB Consumer Confidence. Estimate 126.6

*All release times are DST

*Key events are in bold

USD/JPY for Monday, August 27, 2018

USD/JPY August 27 at 10:25 DST

Open: 111.24 High: 111.35 Low: 110.94 Close: 111.00

USD/JPY Technical

USD/JPY has posted small losses in the Asian session and this trend has continued in European trade.

• 110.21 is providing support
• 111.22 was tested in resistance earlier. It is a weak line

Further levels in both directions:

• Below: 110.21, 109.21 and 108.11
• Above: 111.22, 112.30, 113.75 and 114.73
• Current range: 110.21 to 111.22

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