USD/JPY – Safe-haven yen jumps as markets lose ground

The Japanese yen has posted sharp gains in the Tuesday session. In North American trade, USD/JPY is trading at 112.01, down 0.73% on the day. Investors have supported the safe-haven yen, as global equity markets are in red territory on Tuesday. On the release front, BoJ Core CPI posted a gain of 0.5%. In the U.S, the Richmond Manufacturing Index dropped sharply to 15 in October, down from 29 points in September. We’ll get another look at Japanese inflation on Wednesday, with the release of SPPI.

The Bank of Japan’s radical monetary easing policy has cut into the profits of many financial institutions, but the BoJ has no plans to alter course. The bank released its semiannual financial system report, which noted that the financial sector shows no signs of overheating and that banks continue their “active lending attitudes”. However, there was a warning as well, with the report noting that the extremely low interest rates and led to lenders being more aggressive and entering less-profitable loans with small businesses. The BoJ is unlikely to make any changes to policy before 2020, aside from some minor tweaks. Bank policymakers will meet on Oct. 30-31 for the next policy meeting.

The trade war between the U.S and China remains a serious concern for Japan, whose economy is heavily dependent on exports. A Japanese government report released on Tuesday sounded pessimistic about the export sector. The October report lowered its forecast for exports, due to the ongoing trade war. The report said that exports were flat, but also noted that the Japanese economy continued to recover at a moderate pace. President Trump has spared Japan’s auto sector from tariffs for now, but Japan could be in serious trouble if the trade war escalates. China is Japan’s largest trading partner and the downturn in China’s growth in the third quarter is not good news for Japan.

Desperately seeking stability

A wall of worry has morphed into towering wall of pain

Markets remain shrouded in a thick blanket of risk.

USD/JPY Fundamentals

Tuesday (October 23)

• 1:00 Japanese BoJ Core CPI. Actual 0.5%
• 10:00 US Richmond Manufacturing Index. Estimate 25
• 13:30 US FOMC Member Bostic Speaks

Wednesday (October 24)

• 19:50 Japanese SPPI. Estimate 1.2%

*All release times are DST

*Key events are in bold

USD/JPY for Tuesday, October 23, 2018

USD/JPY October 23 at 10:25 DST

Open: 112.83 High: 111.96 Low: 112.04 Close: 112.01

USD/JPY Technical

USD/JPY ticked higher in the Asian session and posted slight gains in European trade. The pair retracted at the start of North American trade but has changed directions and moved higher

• 111.20 is providing support
• 112.30 has switched to resistance following losses by USD/JPY on Tuesday
• Current range: 111.20 to 112.30

Further levels in both directions:

• Below: 111.20, 110.28 and 109.32
• Above: 112.30, 113.75, 114.73 and 115.51

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