Yen Falls On Weak Inflation But Recovers

The Japanese yen is showing volatility in the Friday session. USD/JPY climbed to a high of 113.90, but has retracted and dropped sharply. Currently, USD/JPY is trading at 112.70. On the release front, Tokyo Core CPI remained unchanged at -0.4%, matching the forecast. There are no major US events on the schedule.

The Japanese yen remains under pressure, as USD/JPY continues to trade at its highest level since March. The dollar has surged 8.3 percent since November 7, just prior to the US election. The yen received no help from inflation indicators on Friday, as the economy continues to grapple with deflation. Tokyo Core CPI, the primary gauge of consumer inflation, which came in at -0.4% in the November report, has failed to post a gain in 2016. The BoJ has failed to kick-start inflation or boost growth, despite radical easing measures such as negative interest rates. Japanese policymakers have indicated that the government may resort to fiscal stimulus in order to increase economic growth. On Monday, we’ll get a look at Household Spending, a key indicator which has posted seven consecutive declines.

The Federal Reserve is poised to raise interest rates by a quarter-point in December, with the odds of a rate hike at 93 percent. The Fed minutes were released on Thursday, indicating that policymakers felt it appropriate to raise rates “relatively soon”. Some members argued that the Fed needs to raise rates in December in order to preserve the bank’s credibility – despite some broad hints of rate hikes during 2016, the Fed has stayed on the sidelines throughout 2016, causing significant disappointment and frustration in the markets.

The US economy continues to post strong data and on Wednesday it was the turn of durable goods reports. Core Durable Goods Orders rose 1.0%, well above the estimate of 0.2%. Durable Goods Orders surged 4.8%, crushing the estimate of 1.2%. These strong numbers point to a welcome improvement in business investment, and strong consumer fundamentals could see business spending numbers continue to improve. There was also positive news on the consumer front, as the UoM Consumer Sentiment index climbed to 93.8, above the forecast of 91.6.

USD/JPY Fundamentals

Thursday (November 24)

  • 18:30 Tokyo Core CPI. Estimate -0.4%. Actual -0.4%
  • 18:30 National Core CPI. Estimate -0.4%. Actual -0.4%
  • 18:50 Japanese SPPI. Estimate 0.3%. Actual 0.5%

Friday (November 25)

  • 00:00 BoJ Core CPI. Estimate 0.3%. Actual 0.3%
  • 8:30 US Goods Trade Balance. Estimate -59.2B
  • 8:30 US Preliminary Wholesale Inventories. Estimate 0.3%
  • 9:45 US Flash Services PMI. Estimate 54.9

*All release times are EST

*Key events are in bold

USD/JPY for Friday, November 25, 2016


USD/JPY November 24 at 6:00 EST

Open: 113.25 High: 113.90 Low: 112.52 Close: 112.73

USD/JPY Technicals

  • USD/JPY posted gains in the Asian session but retracted. The pair continues to drop in the European session
  • 112.48 is providing support
  • There is resistance at 113.86
  • Current range: 112.48 to 113.86

Further levels in both directions:

  • Below: 112.48, 111.45, 110.68 and 109.47
  • Above: 113.86, 114.13 and 115.45

OANDA’s Open Positions Ratio

USD/JPY ratio is unchanged in the Friday session. Currently, short positions have a majority (57%), indicative of trader bias towards USD/JPY continuing to move lower.

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