USD/JPY – Yen jumps as dollar retreats after dovish Fed statement

The Japanese yen continues to surge higher this week. In Thursday’s North American session, USD/JPY is trading at 111.65, down 0.75% on the day. The yen has broken below the 112 line for the first time since late October, as the U.S. dollar continues to suffer broad losses this week. In economic news, the BoJ maintained interest rates at -0.10%. In the U.S., unemployment claims rose to 214 thousand, just under the forecast of 216 thousand. The Philly Fed Manufacturing Index dropped sharply to 9.4 in November, down from 12.9 a month earlier. This was the lowest level since November 2016. Later in the day, Japan releases National Core CPI, which is expected to remain pegged at 1.0% for a third straight, month. On Friday, the U.S releases Final GDP, durable goods orders and consumer confidence.

There were no surprises from the Bank of Japan, which made no change to its stimulus program and remained cautious. Policymakers said that the Japanese economy will show moderate expansion, but noted continuing risks to the economy due to the U.S-China trade spat and turmoil in the financial markets. BoJ Governor Kuroda hinted that due to the uncertain economic conditions, the bank could increase stimulus in order to reach the bank’s 2 percent inflation target.

The markets were prepared for another rate hike at the Federal Reserve meeting, and policymakers pressed the rate trigger for the fourth time in 2018. Investors were also looking for Christmas goodies from the Fed, in the form of a dovish rate statement. There was speculation that the Fed would “compensate” investors, given that the markets have been in turmoil for weeks and the U.S. economy appears to be cooling down.

However, the Fed seems bent on continuing to raise rates in 2019 – most significantly, policymakers did not remove the critical phrase “further gradual increases” from their statement. At the same time, the dot plot forecast was lowered for 2019, from three rate rises to two. This marks a U-turn for the Fed, as back in October, Fed Chair Jerome Powell talked about continuing to raise rates until the “neutral rate” range was met. This range has been somewhat unclear, allowing Powell to say on Thursday that the “lower end” of the range has been achieved. Investors had counted on a more dovish stance from the Fed and responded with a thumbs-down, sending USD/JPY sharply lower.

A not so dovish hike by the Fed

All about the FED and the discussions go on.

USD/JPY Fundamentals

Wednesday (December 19)

• 9:52 BoJ Monetary Policy Statement
• 9:52 BoJ Policy Rate. Estimate -0.10%. Actual -0.10%
• 23:30 Japanese All Industries Activity.Estimate 2.0%. Actual 1.9%

Thursday (December 20)

• 1:30 BoJ Press Conference
• 8:30 US Philly Fed Manufacturing Index. Estimate 15.1
• 8:30 US Unemployment Claims. Estimate 216K
• 10:00 US CB Leading Index. Estimate 0.0%
• 10:30 US Natural Gas Storage. Estimate -136B
• 18:30 Japanese National Core CPI. Estimate 1.0%

*All release times are EST

*Key events are in bold

USD/JPY for Thursday, December 20, 2018

USD/JPY December 20 at 8:45 EST

Open: 112.48 High: 112.61 Low: 111.64 Close: 111.65

USD/JPY Technical

USD/JPY edged lower in the Asian session and has recorded stronger losses in European trade

• 111.20 is providing support
• 112.30 is the next resistance line
• Current range: 112.30 to 113.75

Further levels in both directions:

• Below: 111.20, 110.28 and 109.37
• Above: 112.30, 113.75, 114.73 and 115.50

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.