Yen Slide Continues As Japan Plans Further Stimulus

The Japanese yen has posted sharp losses on Tuesday, following strong gains in the Monday session. USD/JPY is trading above the 104 level early in the North American session. On the release front, Japanese Tertiary Industry Activity reversed directions and posted a decline of 0.7%, matching the estimate. In the US, today’s key event is JOLTS Job Openings, with the indicator expected to dip to 5.74 million. We’ll also hear from two FOMC members during the day, and the markets will be looking for clues regarding the Fed’s future monetary policy.

Japanese Prime Minister Shinzo Abe received a vote of confidence on Sunday, as his coalition scored an impressive election victory. This has paved the path for further monetary stimulus as part of the government’s economic platform, popularly known as ‘Abenomics’. This controversial program is characterized by ultra-easy monetary policy and fiscal spending, with the aim of kick-starting the economy and creating inflation. Previous rounds of monetary easing have made the yen less attractive compared to other currencies, pushing down its value. Abe has asked Economic Minister Nobuteru Ishihara to prepare a fiscal stimulus package and the markets will be focusing on the Bank of Japan, which meets in late July and could adopt further easing measures. The yen has responded negatively to all the talk about monetary easing, and has shed 350 points this week.

The Federal Reserve hasn’t strayed from the sidelines in the first half of 2016, and the markets aren’t expecting a dramatic shift anytime soon. Given the current economic climate, the markets are pessimistic about any rates moves before 2017. Investors have priced in no chance of a rate increase at the next Fed meeting on July 26-27, and just an eight percent chance of a hike in 2016. However, if US employment and inflation numbers improve in the second half of the year, the likelihood of a rate hike will certainly increase. Last week’s minutes from the June policy meeting indicated that Janet Yellen & Co. remain cautious about the strength of the US economy. Although some Fed members have said that rates could be raised up to two times in 2016, clearly the markets aren’t buying it. Still, market sentiment can change very quickly, so if US employment and inflation numbers improve in the second half of the year, the likelihood of a rate hike sometime this year will increase.

USD/JPY Fundamentals

Tuesday (July 12)

  • 00:30 Japanese Tertiary Industry Activity. Estimate -0.7%. Actual -0.7%
  • 6:00 US NFIB Small Business Index. Estimate 94.5
  • 9:15 US FOMC Member Daniel Tarullo Speaks
  • 9:35 US FOMC Member James Bullard Speaks
  • 10:00 US JOLTS Job Openings. Estimate 5.74M
  • 10:00 US Wholesale Inventories. Estimate 0.2%
  • 13:01 US 10-year Bond Auction

*Key events are in bold

*All release times are EDT

USD/JPY for Tuesday, July 12, 2016

USD/JPY

USD/JPY July 12 at 9:00 EDT

Open: 102.50 Low: 102.44 High: 104.24 Close: 104.16

USD/JPY Technicals

S3S2S1R1R2R3101.07102.36103.73104.99105.87106.81
  • USD/JPY was flat in the Asian session and posted strong gains in European trade. The pair is steady in the North American session
  • There is resistance at 104.99
  • 103.73 has switched to a support role following strong gains by USD/JPY on Tuesday. It is a weak line
  • Current range: 103.73 to 104.99

Further levels in both directions:

  • Below: 103.73, 102.36, 101.07 and 99.71
  • Above: 104.99, 105.87 and 106.81

OANDA’s Open Positions Ratio

The USD/JPY ratio is unchanged on Tuesday, despite strong gains from USD/JPY. Long positions retain a strong majority (69%), indicative of trader bias towards USD/JPY continuing to move higher.

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