USD/JPY – Yen Slips as BoJ Mulls Further Stimulus

USD/JPY has posted strong gains on Friday. In the European session, USD/JPY is trading at 110.50, its highest level in two weeks. In economic news, Japanese releases were soft, as Flash Manufacturing PMI contracted and Tertiary Industry Activity declined. The sole US event on the schedule is Flash Manufacturing PMI.

The Japanese yen has weakened on Friday, as USD/JPY has punched above the symbolic 110 line. The Bank of Japan meets for its monthly policy meeting next week, and there is a strong possibility that the BoJ could implement further stimulus measures in order to kick-start the weak Japanese economy. In January, the central bank shocked the markets when it adopted negative interest rates for the first time, but this step has not bolstered inflation. If the BoJ opts to further cut rates, the yen could continue to lose ground.

Oil producers attended a meeting in Qatar on Sunday, hoping to reach an agreement to freeze production levels in an attempt to boost sagging oil prices. Although the OPEC and non-OPEC participants failed to reach any consensus on production levels, they managed to cause plenty of volatility in the currency markets during the week. Commodity currencies like the Canadian and Australian dollars showed sharp losses after the meeting, but then recovered and posted strong gains as oil prices stabilized. The safe-haven yen took the opposite direction and has lost 160 points this week, as investors have shown more appetite for risky currencies at the expense of the yen. The Japanese currency has gained about 10 percent against the greenback since the end of January, and this has attracted currency speculators, much to the consternation of the Japanese government, which has warned that it would take steps against currency manipulations.

The US labor market continues to impress, as the weekly unemployment claims indicator fell to 247 thousand, well below the forecast of 265 thousand. This was the lowest weekly count since November 1973, and the four-week indicator, which is considered more accurate, also dropped compared to the previous release. The good news was tempered by a disappointing key manufacturing report. The Philly Fed Manufacturing Index surprised the markets with a decline of -1.6 points, as the estimate stood at 8.1 points. This reading marked the third decline in four readings, as the manufacturing sector remains a weak area of the US economy. Uncertainty in global economic conditions has lead to weaker demand for US goods and put the squeeze on domestic manufacturers.

USD/JPY Fundamentals

Thursday (April 21)

• 22:00 Japanese Flash Manufacturing PMI. Estimate 49.6. Actual 48.0

Friday (April 22)

• 00:30 Japanese Tertiary Industry Activity. Estimate -0.4%. Actual -0.1%
• 9:45 US Flash Manufacturing PMI. Estimate 51.9

Monday (April 25)

• 10:00 US New Home Sales

*Key releases are highlighted in bold

*All release times are EDT

USD/JPY for Friday, April 22, 2016

USD/JPY April 22 at 6:00 EDT

Open: 109.87 Low: 109.26 High: 110.75 Close: 110.50

USD/JPY Technical

• USD/JPY posted strong gains in the Asian session and has leveled off in European trade
• 109.87 has switched to a support role following strong gains by USD/JPY
• 110.66 is providing weak resistance and could break during the day
• Current range: 109.87 to 110.66

Further levels in both directions:

• Below: 109.87, 108.37, 107.57, and 106.25
•  Above: 110.66, 111.50 and 112.41

OANDA’s Open Positions Ratio

USD/JPY ratio is showing little movement on Friday, despite strong gains by USD/JPY. Long positions command a strong majority (65%), indicative of strong trader bias towards the pair continuing to move 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.