The Japanese yen has posted huge gains on Thursday, as USD/JPY has dropped 170 points. The pair is trading at 104.30. The yen responded positively to a lack of action from the BoJ at its policy meeting late Wednesday. Over in the US, it’s a busy day, highlighted by consumer inflation reports and unemployment claims. On Friday, the US releases Building Permits, a key event.
The Bank of Japan refrained from any monetary expansion at its policy meeting on Wednesday, and the yen took full advantage with strong gains against the dollar. The yen is within striking distance of the 104 line, as USD/JPY has dropped to its lowest level since September 2014. BoJ Governor stated in a press conference that the central bank wouldn’t hesitate to take action if needed, However skeptics might argue that having already adopted negative interest rates, the BoJ is firing blanks as it has no more monetary ammunition left. This lack of action means that the yen has plenty of room to rise (further easing would likely weaken the yen), as underscored by the yen’s sharp rise earlier on Thursday. At the same time, Japan is extremely concerned about a strong yen, and on Tuesday, Japanese Finance Minister Taro Aso on Tuesday sent a fresh warning that Japan would “firmly respond” against speculative moves in the currency markets. The US is staunchly against any unilateral currency intervention by Japan, and the countries’ finance ministers were involved in a public spat over this issue at the recent G-7 meeting in Tokyo. If the yen continues to strengthen and approaches the symbolic 100 level, we could see further heated exchanges between Japan and the US over currency intervention.
The Federal Reserve was center stage on Thursday, but there was no surprises as the Fed opted for the sidelines and held the benchmark rate at 0.25%, where it has been pegged since December 2015. A dismal Nonfarm Payrolls report and dovish statements from Fed chair Janet Yellen and her colleagues had all but decimated any chance of a June hike. Back in April, Fed chair Janet Yellen had renewed hopes of rate hike in the summer, when she said that she expected a rate hike in “the coming months”. The Fed’s tone has drastically changed since then, and there is a strong likelihood that the Fed will raise rates only once in 2016. The Fed statement did not shed any light on the timing of a rate hike, although many analysts are circling September in their calendars. The statement was cautious in tone, stating that the Fed expects US inflation levels to remain at low levels in the near term. As well, the Fed lowered its rate path outlook for 2016 and 2017. Gone are the heady days in December, when the Fed hinted that it could raise rates up to four times in 2016. Many analysts were skeptical about this rosy (brash?) prediction, and it appears that the Fed was overly optimistic about the strength of the US economy.
USD/JPY Fundamentals
Wednesday (June 15)
- 22:45 BOJ Monetary Policy Statement
Thursday (June 16)
- 8:30 US CPI. Estimate 0.3%
- 8:30 US Core CPI. Estimate 0.2%
- 8:30 US Philly Fed Manufacturing Index. Estimate 1.1
- 8:30 US Unemployment Claims. Estimate 267K
- 8:30 US Current Account. Estimate -125B
- 10:00 US NAHB Housing Market Index. Estimate 59
- 10:30 US Natural Gas Storage. Estimate 66B
Upcoming Key Releases
Friday (June 17)
- 8:30 US Building Permits. Estimate 1.15M
*Key events are in bold
*All release times are EDT
USD/JPY for Thursday, June 16, 2016
USD/JPY June 16 at 11:00 EDT
Open: 105.88 Low: 105.89 High: 103.50 Close: 104.34
USD/JPY Technical
| S3 | S2 | S1 | R1 | R2 | R3 |
| 101.07 | 102.36 | 103.73 | 104.99 | 105.87 | 107.16 |
- USD/JPY posted sharp losses in the Asian session, breaking below two support levels. The pair is choppy in European trade
- 103.73 was tested earlier in support and could see further action during the Thursday session
- There is resistance at 104.99
- Current range: 103.73 to 104.99
Further levels in both directions:
- Below: 103.73, 102.36 and 101.07
- Above: 104.99, 105.87 and 107.16
OANDA’s Open Positions Ratio
The USD/JPY ratio is showing little movement on Thursday, despite the yen recording sharp gains. Long positions have a strong majority (69%), indicative of trader bias towards USD/JPY reversing directions and moving to higher ground.