USD/JPY – Dollar Breaks Below 113 Yen Ahead as Fed Rate Hike Expected

After little movement this week, USD/JPY has posted losses in the Wednesday session. In North American trade, USD/JPY is trading at 113.06, down 0.43% on the day. On the release front, Japanese Core Machinery Orders posted a strong gain of 5.0%, beating the estimate of 3.1%. In the US, inflation numbers were a mix. CPI improved to 0.4%, matching the forecast. However, Core CPI, which excludes volatile items such as food and energy prices, edged lower to 0.1%, missing the estimate of 0.2%. Later in the day, the Federal Reserve is expected to raise rates to a range between 1.25% to 1.50%. On Thursday, the US releases retail sales reports and unemployment claims, while Japan will publish the Tankan indices.

Will the Federal Reserve press the rate trigger on Wednesday? The CME Group has priced in a quarter-point rate hike at 87%, so it would be a huge surprise if the Fed doesn’t raise the benchmark rate. Even though this move has been priced in, rate hikes tend to trigger a surge of confidence among investors, and a rate hike could boost global stock markets. Today’s move could be the start of a series of incremental hikes, as the odds of a January increase stand at 86%. The Fed has hinted that it could raise rates up to three times in 2018, but the pace of increases will depend to a great extent on the strength of the economy and inflation levels. The US labor market remains at full capacity and various sectors in the economy are reporting a lack of workers. Still, this has not translated into stronger wage growth, despite predictions from Janet Yellen and other Fed policymakers that a lack of workers is bound to push up wages.

The Bank of Japan’s ultra-accommodative stimulus program has failed to push inflation higher, as the BoJ’s inflation target of  2 percent remains elusive. However, the program has led to a sharp depreciation in the yen. This has led to sharp denunciations from the US and other countries, and the criticism that the Bank was manipulating the yen was especially sharp when the dollar rose to around 120 yen. A weak yen has been a boon for exports and helped revive the manufacturing sector. A chief economist at the NLI Research  Institute went as far as saying that the low yen has been a major accomplishment for the BoJ. According to this view, the BoJ is reluctant to signal the possibility of a taper of stimulus, since that could trigger a sharp rise in the yen. Clearly, the BoJ is closely following yen fluctuations, and currency movement will continue to be an important factor for the BoJ.

USD/JPY Fundamentals

Tuesday (December 12)

  • 18:50 Japanese Core Machinery Orders. Estimate 3.1%. Actual 5.0%

Wednesday (December 13)

  • 8:30 US CPI. Estimate 0.4%. Actual 0.4%
  • 8:30 US Core CPI. Estimate 0.2%. Actual 0.1%
  • 10:30 US Crude Oil Inventories. Estimate -3.6M
  • Tentative – President Trump Speaks
  • 14:00 US FOMC Economic Projections
  • 14:00 US FOMC Statement
  • 14:00 US Federal Funds Rate. Estimate <1.50%
  • 14:00 US FOMC Press Conference
  • 18:00 US FOMC Member Lael Brainard Speaks
  • 23:30 Japanese Revised Industrial Production. Estimate 0.5%

Thursday (December 14)

  • 8:30 US Core Retail  Sales. Estimate 0.6%
  • 8:30 US Retail  Sales. Estimate 0.3%
  • 8:30 US Unemployment Claims. Estimate 237K
  • 18:50 Japanese Tankan Manufacturing Index. Estimate 24
  • 18:50 Japanese Tankan Non-Manufacturing Index. Estimate 24

*All release times are GMT

*Key events are in bold

USD/JPY for Wednesday, December 13, 2017

USD/JPY December 13 at 11:20 EDT

Open: 113.55 High: 113.58 Low: 112.96 Close: 113.06

USD/JPY Technical

S3 S2 S1 R1 R2 R3
110.10 111.53 112.57 113.55 114.59 115.50

USD/JPY has posted losses in the Asian and European sessions. The pair is flat in North American trade

  • 112.57 is providing support
  • 113.55 is the next resistance line

Current range: 112.57 to 113.55

Further levels in both directions:

  • Below: 112.57, 111.53, 110.10
  • Above: 113.55, 114.59, 115.50 and 116.54

OANDA’s Open Positions Ratios

USD/JPY ratio is unchanged this week. Currently, long positions have a majority (54%), indicative of trader bias towards USD/JPY continuing to moving lower.

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.

Kenny Fisher

Kenny Fisher

Market Analyst at OANDA
A highly experienced financial market analyst with a focus on fundamental and macroeconomic analysis, Kenny Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities. His work has been published in major online financial publications including, Seeking Alpha and FXStreet. Kenny has been a MarketPulse contributor since 2012.