USD/JPY – Yen Continues to Improve, Tests 88 Line
The Japanese yen, which has taken a beating from the US dollar since early December, continues to show strength. The yen has managed to reverse direction and is trading in the 88.20 range, after briefly pushing below the 88 line in Wednesday's European session. The markets continue to analyse US numbers from releases on Tuesday. Retail sales numbers were positive, but manufacturing data looked very weak. In Japan, Core Machinery Orders posted their highest gain since September 2012, but Consumer Confidence was well below expectations. Today's key release is US Core CPI.
The Japanese yen continues to show upwards momentum, following surprising comments from Akira Amari, Japan's Economy Minister. Amari said that a severely weakened yen would be good for the export sector, but could still hurt the Japanese economy, as it would increase the price of imported goods and impact negatively on people's livelihood. His comments echoed the sentiments of many Japanese business leaders, who have expressed concern and unease at the rapid descent of the Japanese currency. However, such remarks from a senior cabinet minister surprised the markets, as Prime Minister Abe has been continually talking about a lower yen and has been applying strong pressure on the Bank of Japan to implement further easing steps which will decrease the yen's value. Meanwhile, Bank of Japan Governor Masaaki Shirakawa stated that the BOJ will introduce further monetary easing steps, and warned that the economy would continue to struggle due to weak global conditions. The BOJ implemented monetary easing throughout 2012, and is widely expected to follow suit when it announces its benchmark interest rate on January 21st. Analysts expect the central bank to double its inflation target to 2%, which is the government's stated target.
Federal Reserve Chairman Bernard Bernanke had little to say about the current round of QE, but he did weigh in on the debt ceiling issue. Speaking at the University of Michigan, Bernanke urged Congress to raise the debt ceiling. Bernanke further noted that having the Federal Reserve tinker with interest rates will not make much difference to the economy. What is critical, he said, is that Congress ensures that the country's fiscal house is in order. This would lead to higher interest rates as the economy improves. The US is quickly approaching its debt limit of $16.4 trillion, and the issue promises to be a hot topic in Congress, which is fresh off a bitter fight over the fiscal cliff. That battle left spending cuts and the debt for another day. Republicans have sounded the alarm about the staggering US debt and the crippling effect it can have on the economy. They have vowed to tie the debt ceiling to further spending cuts and want to see cuts to major federal programs such as Medicaid. The Democrats, led by President Obama, are adamantly opposed to cuts in federal programs, and want to deal the issues of the debt ceiling and spending cuts separately.
In the US, key data continues to paint a mixed picture. Retail Sales looked sharp, rising 0.5%. This beat the estimate of 0.2%, and was the biggest increase since October. Core Retail Sales also looked good, climbing 0.3%. However, the news was not all positive, as manufacturing data looked very weak. The Empire State Manufacturing Index dropped -7.8 points, shocking the markets, which had anticipated a gain of 1.9 points. This important index has posted consecutive declines since July, and points to serious weakness in the US manufacturing sector. In Japan, Core Machinery Orders jumped 3.9%, surprising the markets, which had expected a weak gain of 0.4%. Consumer Confidence sagged to its lowest level in a year, coming in at 39.2 points. This was well below the forecast of 40.7 points, and points to weak confidence in the Japanese economy.
USD/JPY for Wednesday, January 16, 2013
USD/JPY Jan 16 at 12:05 GMT
88.22 H: 88.77 L: 87.79
USD/JPY continues to lose ground, as the pair briefly dropped below the 88 line, before recovering. The pair is putting pressure on 87.95, just below the important round number of 88. There is stronger support at 87.36. On the upside, there is resistance at 88.55. This line is weak, and could see activity if the US dollar bounces back against the yen. The next line of resistance is 89.31, which has strengthened as the pair has moved downwards.
• Current range: 87.95 to 88.55.
Further levels in both directions:
• Below: 87.95, 87.36, 86.97, 86.37 and 86.
• Above: 88.55, 89.31, 89.85, 90.23, 90.91, 91.30 and 91.94.
OANDA's Open Position Ratios
Despite the fluctuations in USD/JPY, the ratio has been very quiet since Tuesday. The ratio is close to evenly split between long and short positions, and the lack of movement indicates uncertainty on the part of traders as to what direction the pair is headed. Will the downward momentum continue, or could we soon find the pair again closing in on the critical 90 line? We'll have to keep a close eye on the ratio for any sign of activity.
Japan's Economy Minister warning about the pitfalls of a weak yen, and the markets have jumped on these comments, as the yen has flexed some muscle. However, the Abe government has a clear economic agenda, and is pressuring the BOJ to take further easing action , which will push the yen down further. The volatility may continue, but we can expect USD/JPY to remain at very high levels.
- 5:00 Japanese Consumer Confidence. Estimate 40.7 points. Actual 39.2 points.
- 13:30 US Core CPI. Estimate 0.2%.
- 13:30 US CPI. Estimate 0.0%.
- 14:00 US TIC Long-Term Purchases. Estimate 19.8B.
- 14:15 US Capacity Utilization Rate. Estimate 78.6%.
- 14:15 US Industrial Production. Estimate 0.2%.
- 15:00 US NAHB Housing Market Index. Estimate 48 points.
- 13:30 US Crude Oil Inventories. Estimate 2.0M.
- 19:00 US Beige Book.
- 23:50 Japanese Tertiary Industry Activity. Estimate 0.1%.
*Key releases are highlighted in bold
*All release times are GMT
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