USD/JPY – Japanese Yen Dips as Trade War Tensions Ease

The Japanese yen has started the week with losses. In the Monday session, USD/JPY is trading at 111.28, up 0.48% on the day. On the release front, Japan’s trade surplus was unexpectedly strong at JPY 0.55 trillion, crushing the estimate of 0.11 trillion. In the US, the sole event is a speech from FOMC member Raphael Bostic. On Tuesday, the US releases the Richmond Manufacturing Index. Japan will publish BoJ Core CPI and Flash Manufacturing PMI.

After weeks of an escalating trade war between the US and China, there was a breakthrough of sorts on Sunday. The US dollar has posted gains after Treasury Secretary Steven Mnuchin announced that the two sides had made significant progress and the trade war was being ‘put on hold’. Just last week, the White House sounded pessimistic about a deal being reached with China. The two economic giants have traded stiff tit-for-tat tariffs in recent weeks, worth billions in trade. These moves had raised fears of a bilateral trade war between the two largest economies in the world. The respite in tariffs means that the US can sit down with the Chinese and discuss the US trade deficit with China, which President Trump has long complained is a result of a non-level playing field with China.

Is the Bank of Japan looking to exit from its ultra-accommodative stimulus program? The cautious central bank will certainly move carefully. Any steps will be small and incremental in nature, in order not to rattle the markets or the yen exchange rate. The bank took one such step in April when it removed a deadline for hitting its inflation target of around 2 percent.  Currently, BoJ policymakers are looking to raise bond yields from their near-zero levels as part of normalizing monetary policy. The stimulus program was introduced in 2013, when a confident BoJ Governor Kuroda claimed that he would reach the inflation target within two years. Fast forward to 2018, and the inflation target remains elusive, despite the bank spending trillions of yen in stimulus. The Japanese economy has shown some improvement, which will make it easier for the BoJ to exit from its radical easing policy. Still, traders should be prepared for small, incremental steps towards this end.

  A test of the breakouts

Meaningful Progress Made in US and China Trade Talks

USD/JPY Fundamentals

Sunday (May 20)

  • 19:50 Japanese Trade Balance. Estimate 0.11T. Actual 0.55T

Monday (May 21)

  • 11:30 US FOMC Member Rafael Bostic Speaks

Tuesday (May 22)

  • 1:00 Japanese BoJ Core CPI. Estimate 0.6%
  • 10:00 US Richmond Manufacturing Index. Estimate 9
  • 8:30 Japanese Flash Manufacturing PMI. Estimate 53.6

*All release times are DST

*Key events are in bold

USD/JPY for Monday, May 21, 2018

USD/JPY May 21 at 7:55 DST

Open: 110.76 High: 111.40 Low: 110.76 Close: 110.28

USD/JPY Technical

S3 S2 S1 R1 R2 R3
108.00 108.89 110.11 111.22 112.06 113.39

USD/JPY showed little movement in the Asian session. The pair moved higher in the European session and is steady in North American trade

  • 110.11 is a weak support line
  • 111.22 is the next resistance line

Further levels in both directions:

  • Below: 110.11, 108.89, 108.00 and 107.29
  • Above: 111.22, 112.06 and 113.39
  • Current range: 110.11 to 111.22

OANDA’s Open Positions Ratios

In the Monday session, USD/JPY ratio long positions have a majority (57%). This is indicative of trader bias towards USD/JPY continuing to move higher.

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.