Yen Continues Hugging 100; Japanese Business Activity Up Next

The Japanese yen is showing limited movement on Friday, with USD/JPY continuing to stay close to the symbolic 100 level. Currently, the pair is trading at 100.20. On the release front, it’s a very quiet end to the week, with just one release on the schedule. Japanese All Industries Activity posted a gain of 1.0%, edging above the estimate of 0.9%. There are no US events on the schedule.

The Japanese All Industries Activity, which measures spending in the business sector, pointed upwards in June. The indicator posted a strong gain of 1.0%, rebounding from a 1.0% decline a month earlier. This release follows a solid trade balance reading.

Japan’s July trade surplus was almost unchanged at JPY 0.32 trillion, crushing the estimate of JPY 0.14 trillion. This marked the third straight month that the trade surplus has convincingly beaten the estimates.

The round number of 100 has become a major headache for the government and the BoJ, as the strong yen is bad for exports and is impeding attempts to raise inflation levels. The hesitant BoJ has not taken any significant monetary measures in recent months, which has emboldened market players to continue pushing the dollar lower.

If the bank continues to stay on the sidelines, the markets will conclude that the BoJ has given up on further monetary easing, leaving room for the yen to gain further ground and break below the 100 line.

If the markets were hoping for some clarity from the Federal Reserves minutes release, they are likely even more confused on the day after. The minutes, which provided the details of the July policy meeting, indicated that FOMC members are deeply pided on the timing of a rate hike – some want to raise levels soon, as the US labor market approaches full employment, while others expressed concern about making a move with inflation levels well below the target of 2%.

Recent data is pointing in all directions, which helps explains why the Fed is pided over the timing of a rate hike. After a soft GDP report in late July, nonfarm payrolls was stellar. However, this was followed by weak retail sales and CPI numbers.

We’ll likely hear FOMC members continue to express their views ahead of the meeting of central bankers at Jackson Hole next week. The rate debate needs to be resolved one way or another, as the Fed must set rates at its policy meeting next month. Policymakers will be fine-combing through key economic data, particularly employment and inflation numbers.

The news remains bleak on the inflation front, as underscored by July’s consumer inflation reports. CPI posted a weak reading of 0.0%, its worst showing in five months. Core CPI dropped to 0.1%, shy of the estimate of 0.2%. As of now, a September hike is virtually off the table, while the Fed could go either way in December, with the odds of a December hike pegged at 50/50.

USD/JPY Fundamentals

Friday (August 19)

00:30 Japanese All Industries Activity. Estimate 0.9%. Actual 1.0%

*Key events are in bold

*All release times are EDT

USD/JPY for Friday, August 19, 2016

USD/JPY for Friday, August 19, 2016

USD/JPY August 19 at 6:25 EDT

Open: 100.13 High: 100.46 Low: 100.03 Close: 100.20

USD/JPY Technical

  • USD/JPY posted small gains in the Asian session but has given up these gains in European trade
  • 99.71 remains a weak support line
  • There is resistance at 101.20
  • Current range: 99.71 to 101.20

Further levels in both directions:

  • Below: 99.71, 98.95 and 97.78
  • Above: 101.20, 102.36, 103.73 and 104.99

OANDA’s Open Positions Ratio

USD/JPY ratio is showing gains in long positions on Friday, continuing the trend seen in the Thursday session. Currently, long positions have a strong majority (72%), indicative of trader bias towards USD/JPY breaking out and moving to higher ground.

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.

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