It’s been a busy Wednesday session for USD/JPY. The pair initially posted gains, but then reversed directions and has lost ground. Currently, the pair is trading at the 101 line. On the release front, the Bank of Japan did not change interest rates or the monetary base, but said it would abandon its monetary base target.
The action continues later on Wednesday, as the Federal Reserve releases its policy statement and sets the benchmark rate, which is expected to remain pegged at 0.25 percent. On Thursday, the US releases unemployment claims.
There has been plenty of speculation as to what moves, if any, the BoJ would take at its September meeting. On Tuesday, the bank shied away from any dramatic moves, but did make some minor changes to monetary policy. The yen reacted with sharp losses before recovering. The bank surprised by maintaining interest rates at -0.10%, as the markets expected a cut to -0.20%.
The BoJ held monetary base at JPY 80 billion/year, but said it would abandon its monetary base target until inflation reached the 2% target.The bank appears intent on putting greater emphasis on combating deflation, which remains a serious danger to the struggling economy. The general market reaction is one of tweaking its monetary stance as opposed to any substantive new policies.
The FOMC will release a highly-anticipated rate statement later on Wednesday. The Fed is widely expected to maintain the benchmark interest rate at 0.25% but the rate statement and follow-up press conference could shed some light on the likelihood of a December rate, which currently is priced in at 48% (the odds of a September hike are just 15%).
The ECB will be keeping a close eye on the Fed releases, as the Fed’s monetary policy has significant implications for the ECB’s asset-purchase program, which is scheduled to run until March 2017. If the Fed hints at a December rate hike, that could raise global yields, which would be good news for the ECB’s asset-purchase scheme.
Most investment strategists and economists are anticipating that the Fed will hold the benchmark interest rate unchanged opting instead to tweak the Federal Open Market Committee (FOMC) statement and use the dot plot to signal a December rate hike.
Fed Chair Yellen is expected to drive the message further during her press conference. Back in August, Yellen spoke in very positive terms about the US economy, and this raised hopes that the Fed might raise rates in September. However, these expectations were largely dashed after the US posted disappointing GDP and employment reports.
Recent comments from FOMC members, which have been almost contradictory at times, have left the markets confused and reinforced the perception that the Fed remains divided regarding its near-future monetary policy. A clear and decisive message from Yellen could go a long way in improving market sentiment.
If the Fed provides some clues about a December move, the US dollar could move higher. Even if the Fed does go ahead with a December hike, it will prove to be a token raise, coming a year after the last rate hike. In December 2015, the Fed hinted that it expected to implement a series of rate hikes in 2016, but to the market’s chagrin, this never materialized.
USD/JPY Fundamentals
Tuesday (September 20)
- 19:50 Japanese Trade Balance. Estimate 0.50T. Actual 0.41T
Wednesday (September 21)
- Tentative – BoJ Monetary Policy Rate. Estimate -0.20%. Actual -0.10%
- Tentative – BoJ Press Conference
- 14:00 FOMC Economic Projections
- 14:00 FOMC Federal Funds Rate. Estimate
- 14:30 FOMC Press Conference
*All release times are EDT
*Key events are in bold
USD/JPY for Wednesday, September 21, 2016
USD/JPY September 21 at 7:45 EDT
Open: 101.61 High: 102.79 Low: 100.95 Close: 101.02
USD/JPY Technical
| S3 | S2 | S1 | R1 | R2 | R3 |
| 98.95 | 99.71 | 100.55 | 101.20 | 102.36 | 103.73 |
- USD/JPY posted sharp gains in the Asian session. In European trade, the pair has given up these gains and continues to lose ground
- 101.20 is a weak resistance line
- 100.55 is providing support
- Current range: 100.55 to 101.20
Further levels in both directions:
- Below: 100.55, 99.71 and 98.95
- Above: 101.20, 102.36 and 103.73
OANDA’s Open Positions Ratio
USD/JPY ratio is showing gains in towards long positions on Wednesday. Currently, long positions have a substantial majority (69%), indicative of trader bias towards USD/JPY reversing directions and moving higher.