The Japanese yen is showing slight losses on Thursday, as USD/JPY has punched past the 106 line. Currently, USD/JPY is trading at the 106 line. On the economic front, it’s a data-light session as we wrap up the trading week. Japanese Flash Manufacturing PMI came in at 49.0, beating the estimate. In the US, today’s only event is Flash Manufacturing PMI, with the estimate standing at 51.9 points.
The yen has been showing volatility in the past two daily sessions, despite a lack of Japanese data. On Wednesday, USD/JPY shot up to 107.43, its highest level since early June. However, the yen recovered these losses on Thursday as the pair closed below the 106 line.
Much of this volatility can be attributed to market speculation as to what measures the Abe government and Bank of Japan are planning to unveil in the next few weeks. The Abe government, bolstered by a recent election victory, is expected to press ahead with its “Abenomics” economic program, which would likely involve increased government spending.
On Thursday, BoJ Governor Haruhiko Kuroda flatly rejected the use of “helicopter money” – or increasing the budget deficit by a permanent increase in monetary base – in order to combat deflation. This tool is seen as an alternative to quantitative easing and some economists have suggested it could be used in Japan, with interest rates in negative territory and the economy in danger of recession.
Kuroda added that the bank has not changed its stance of utilizing three possible policy options: quantitative and qualitative easing, and interest rates at zero or lower. The Bank of Japan meets for a policy meeting in late July and the markets will be looking for hints as to what, if any, monetary steps the bank will choose to implement.
With the spotlight on the major central banks, it’s the turn of the Federal Reserve next week. The Fed meets for a policy meeting on July 27 but is unlikely to announce a rate hike at that time, given current economic conditions in the US. Is the Federal Reserve leaning more towards a rate hike before the end of the year? The markets appear to think so, as the chances of a rate hike this year has been priced in at 47%, up from just 20% at the start of July.
This positive sentiment is a result of improved economic data over the past week. Another rate hike will be data-dependent, so if key indicators beat expectations, speculation of a rate hike will continue to increase. However, the Fed will be hesitant to make a move if inflation remains stuck at very low levels, nowhere near the Fed’s target of around 2 percent.
USD/JPY Fundamentals
Friday (July 22)
- 9:45 US Flash Manufacturing PMI. Estimate 51.9
- 22:00 Japanese Flash Manufacturing PMI. Estimate 48.3. Actual 49.0
- Day 1 – G20 Meetings
*Key events are in bold
*All release times are EDT
USD/JPY for Friday, July 22, 2016
USD/JPY July 22 at 6:00 EDT
Open: 105.79 High: 106.28 Low: 105.55 Close: 106.05
USD/JPY Technical
| S3 | S2 | S1 | R1 | R2 | R3 |
| 103.73 | 104.99 | 105.87 | 106.81 | 107.65 | 108.61 |
- USD/JPY was flat in the Asian session and has posted slight gains in European trade
- There is resistance at 106.81
- 105.87 was tested earlier in support. It remains a weak line
- Current range: 105.87 to 106.81
Further levels in both directions:
- Below: 105.87, 104.99, 103.73 and 102.36
- Above: 106.81, 107.65 and 108.61
OANDA’s Open Positions Ratio
The USD/JPY ratio is almost unchanged on Friday. Currently, long positions have a majority (56%), indicative of trader bias towards USD/JPY continuing to move to higher ground.