The Japanese yen started off the trading week with gains. Currently, USD/JPY is trading at 103.72, down 0.32% on the day.
Tankan indices improve
Japan’s services and manufacturing sectors remained in contraction territory in the third quarter, but the pace of contraction is slowing. That is the picture we’re getting from the well-respected Tankan indices. The Manufacturing Index improved to -10 in the third quarter, up from -27 in Q2. It was a similar story for the Services Index, which rose from -12 to -5 points. Both indicators surpassed the consensus estimates.
Japan posted a 5.3% gain in GDP in the third quarter, which ended a recession of three consecutive quarters of negative growth. However, like much of the world, Japan is grappling with a third wave of Covid-19 cases. The Bank of Japan holds its monthly policy meeting later this week, and the bank is expected to maintain its current monetary easing stance. However, we could see some special measures in light of the Covid crisis. The central bank has warned that there are significant downside risks to the economy, given the global economic crisis and weak domestic activity.
The US dollar has been a punching bag for many currencies, but the yen has only made modest gains, as both currencies are considered safe-haven assets. There has been giant progress towards Covid vaccine distribution in the coming weeks, which has raised investor risk appetite. This has resulted in reduced appetite for both dollars and yen, as pro-cyclical currencies have registered sharp gains.
USD/JPY Technical Analysis
- USD/JPY faces resistance at 104.15. This is followed by resistance at 104.48
- 103.73 is fluid, as the pair is currently at this line. The next support line is at 103.40
- The pair broke below the 20-day MA on Friday, a sign of a downturn