USD/JPY – Yen Improves to 5-Month Highs

The Japanese yen has posted sharp gains on Wednesday, as USD/JPY trades at 116.60 in the European session. On the release front, Japan will release All Industries Activity, a minor event. Over in the US, today’s highlight is the CPI report. On Thursday, the US will release two key events, Unemployment Claims and the Philly Fed Manufacturing Index.

The yen posted strong gains late last week, and has continued to improve on Wednesday, breaking below the 116 line. USD/JPY is trading at its lowest levels since August 2015, as the yen, a safe-haven currency, has benefited from jittery investors who have endured a rocky start to 2016. China, the world’s second largest economy, continues to show signs of slowdown. Chinese GDP for the fourth quarter showed another drop, as the key indicator dipped to 6.8%, shy of the forecast of 6.9%. Annual GDP for 2015 came in at 6.9%, the weakest gain in 25 years. A softer Chinese economy is having repercussions in the global stock markets and currency markets, and the yen has responded with gains of 350 points in the month of January. At the same time, Japanese fundamentals have not kept pace with US numbers, and the Bank of Japan remains under strong pressure to increase monetary easing and kick-start the struggling Japanese economy. Such moves by the BOJ would likely weaken the Japanese yen.

Weak US inflation indicators remain a concern for Federal Reserve policymakers, who must decide whether another rate hike would be appropriate in early 2016. The Federal Reserve raised interest rates in December for the first time in nine years, and hinted that this move was the first of a series in 2016. There is speculation that the Fed could make a move in March, contingent on the US economy continuing to show strong numbers. At the same time, minutes from the Federal Reserve Policy meeting in December indicated that some policymakers are concerned that the inflation picture may not improve anytime soon, and it would be premature to raise rates again before the inflation levels improve. CPI, the primary gauge of consumer inflation, will be released later on Wednesday, so this release could be an important factor with regard to monetary policy.

USD/JPY Fundamentals

Wednesday (Jan. 20)

• 8:30 US Building Permits. Estimate 1.20M
• 8:30 US CPI. Estimate 0.0%
• 8:30 US Core CPI. Estimate 0.2%
• 8:30 US Housing Starts. Estimate 1.19M
• 10:30 US Crude Oil Inventories. Estimate 3.3M
• 23:30 Japanese All Industries Activity.  Estimate -0.7%

Thursday (Jan. 21)

• 8:30 US Philly Fed Manufacturing Index. Estimate -3.1 points
• 8:30 US Unemployment Claims. Estimate 281K

*Key releases are highlighted in bold

*All release times are EST

USD/JPY for Wednesday, January 20, 2016

USD/JPY January 20 at 7:50 EST

Open: 117.56 Low: 115.96 High: 117.57 Close: 116.64

USD/JPY Technical

• USD/JPY posted sharp losses in the Asian session and has been choppy in European trade
• 116.88 has switched to a resistance role following sharp losses by the pair
• 115.45 is providing support
• Current range: 115.45 to 116.88

Further levels in both directions:

• Below: 115.45, 113.23 and 112.48
• Above: 116.88, 118.53, 119.58 and 120.40

OANDA’s Open Positions Ratio

USD/JPY ratio is showing little change on Wednesday. Long positions continue to command a solid majority (65%), which is indicative of strong trader bias towards the pair reversing directions and moving higher.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.