Asia Focus: USDJPY Around Key Levels, And Could Break Its Range

There was little reaction in USDJPY after Japan’s Prime Minister Shinzo Abe officially announced his decision to raise his country's sales tax rate from five percent to eight percent next April, but the pair remains elevated above June lows around 93.70.

USD bids following Federal Reserve Chairman Ben Bernanke’s hint of a possible decision to taper asset purchases later this year triggered a rise in USDJPY, but the pair was pressured lower into a range around 96.50 and 100 for the remainder of the summer months. Now, the symmetrical triangle of lower highs and higher lows will likely meet at its peak which could suggest direction.

Waiting to break the range
A slip below 97.50 would point to further downside, but if USDJPY can sustain moves above 98.00 and eventually break 98.50, we could see some upside. The market seems to be in a wait-and-see mode around these important levels, especially with event risk and fundamentals to consider.

US political mess
The US government shutdown was eventually ignored by the market for now, but the real concern is if the shutdown bleeds into the debt ceiling debate in the next two weeks. The US Treasury Department continues to send warning memos about serious consequences if the debt ceiling is not raised as emergency funds will be exhausted by October 17.

So far, lawmakers are not willing to compromise on a budget to keep the government funded, which simply reduces the amount of time to negotiate on the debt ceiling. With President Obama taking a back seat on negotiations, and prolonged partisan bickering, hope of a compromise is slim.

Don’t forget about the Fed
In Japan, efforts to ensure fiscal consolidation and economic growth bodes well for the market, but there seems to be some continued fatigue after the Federal Reserve’s decision to maintain the pace of asset purchases.

The Nikkei is still weighed down below 14,750 and the 10-year Japanese Government bond yield is still stuck below 0.70 percent after the September 18 Federal Open Market Committee meeting.

USDJPY continued lower off 100 after the Fed announcement, and the rise in US equities could suggest that the market is coming to terms with a decision to taper pushed out to December or even early next year. Also, Q3 earning season will keep US equities occupied for a bit.

Key US data is on hold for this week, so the government shutdown does not support the data driven Fed amid its decision to eventually unwind asset purchases. It’s all really inconvenient, and this is why there is so much uncertainty about USDJPY’s next move.