The US dollar continues to move higher against the yen, and is again testing the 98 line in Friday trading. The dollar took a hit last week as the yen flexed some muscle, but the tide has turned this week as the dollar has recovered most of those losses. USD/JPY has jumped more than 300 points this week. The dollar got a big boost on Wednesday, after US Federal Reserve head Bernard Bernanke stated that the Fed would likely begin to wind up the current QE program if the US economy continues to show improvement. After a host of US releases on Thursday, there are none on Friday. In Japan, the sole release was a speech by BOJ Governor Haruhiko Kuroda at a banking conference in Tokyo.
The currency markets were in full throttle on Wednesday, after Federal Reserve chair Bernard Bernanke said that QE would likely be scaled down in 2013, and could be terminated in 2014, if the economy continues to improve. The Fed said it expects the U.S. economy to grow between 2.3% and 2.6% this year, and unemployment should fall to between 6.5% and 6.8% by the end of 2014. This means that if the US economy shows stronger growth and unemployment falls, there is a strong likelihood that the Fed will scale down QE. It should be remembered that the Federal Reserve is not making any changes at present to QE, which involves bond purchases of $85 billion each month by the Fed. Bernanke’s comments boosted the dollar against the major currencies, including the yen, since tapering QE is dollar-positive.
The Japanese government has implemented an ambitious monetary easing plan, but it appears too early to determine if it has been a success. There have been some signs of economic improvement, such as GDP and personal spending. However, deflation, which the government has declared it will stamp out at all costs, continues to hamper the economy. The government continues to look for ways to revive the lethargic economy, and is now touting a corporate tax cut as a possible option. Japan’s corporate tax rate is higher than most industrialized countries, at a hefty 36%. Lowering the rate would encourage foreign investors as well as Japanese companies to invest in the country. The government has been shy on specifics about this initiative, so we shouldn’t expect any dramatic changes in the short term.
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USD/JPY June 21 at 9:20 GMT
USD/JPY 97.80 H: 98.13 L: 96.92
USD/JPY is pushing higher, as the pair broke above the 98 line on Thursday but was unable to consolidate. Will it have better luck on Friday? The line of 97.18 continues to provide support. The next support level is at 96.03, protecting the 96 line. On the upside, there is plenty of room for the pair to move higher, with no major resistance until 98.94.
- Current range: 97.18 to 98.94
- Below: 97.18, 96.03, 94.91, 94.02, 92.73 and 91.62
- Above: 98.94, 99.57, 100.00 and 100.85
USD/JPY ratio remains unchanged in Friday trading. This is not reflected in the current movement of the pair, as the dollar continues to post gains against the yen. If USD/JPY continues to push higher, we can expect the ratio to swing into action as well.
The dollar has taken off since Bernanke’s comments about QE on Wednesday, and the yen has taken a hit as a result. Will the pair’s upward movement continue, or will we see a correction? There are no number releases on Friday, so we could see the pair settle down close to the 98 level as we wind up the trading week.
USD/JPY Fundamentals
- 6:35 BOJ Governor Haruhiko Kuroda Spoke in Tokyo