USD/JPY - Yen Softens, Markets Eye U.S. Retail Sales, PPI

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Includes: FXY, UDN, UUP
by: Dean Popplewell

By Kenny Fisher

USD/JPY has posted slight gains on Wednesday, as the pair trades at 109.20 in the European session. On the release front, Japanese PPI posted a sharp decline of 3.8%, below the estimate. The US will release three key events – Core Retail Sales, Retail Sales and PPI. The markets are expecting all three indicators to improve over last month’s readings.

The yen has been on an impressive run since late March, but has reversed directions this week. With experts saying the currency could drop to 105 or lower, the Japanese government has sent out warnings about possible intervention to slow down the yen’s huge appreciation, which has hurt the export sector. On Sunday, Chief Cabinet Secretary Yoshihide Suga said that although Japan would adhere to the Group of 20’s agreement to avoid competitive devaluations, this did not preclude Japan from intervening against “manipulation of currencies”. The yen has jumped 10 percent in 2016, and despite the tough intervention talk, the upward trend could resume, as the safe-haven yen remains attractive to investors in a turbulent global economy. As well, an OECD report noted that the yen remains undervalued against the US dollar, despite the yen’s recent rally.

The Japanese economy continues to struggle and this has put strong pressure on the Bank of Japan to take additional monetary action. The BoJ can’t be blamed for a lack of effort, as the central bank took radical action in January, adopting negative interest rates for the first time in its history. Despite these moves by the central bank, growth and inflation levels have not improved. If the markets feel that the BoJ has no more monetary easing ammunition left, the yen could continue to strengthen. The next BoJ policy meeting takes place at the end of the month. Will the central bank adopt further easing measures at its meeting or is the monetary tool box empty?

After a quiet start to the week, the markets will finally get a look at key US numbers later on Wednesday. The US releases Retail Sales, the primary gauge of consumer spending, as well as PPI, which measures inflation in the manufacturing sector. All three indicators are expected to rebound with gains in the March reports, after posting declines in February. These releases will be followed by CPI on Thursday. These consumer spending and inflation releases could play an important role concerning the Federal Reserve’s decisions regarding rate hikes. The Fed, which has sent out a decidedly dovish message about the US economy, has greatly lowered expectations about a rate hike in April, but a move in June is still on the table. Although US inflation levels have shown some improvement, they are nowhere near the Fed target of 2.0%. If this week’s inflation numbers beat expectations, speculation about a June hike will intensify, and the US dollar could post gains.

USD/JPY Fundamentals

Tuesday (April 12)

  • 19:50 Japanese M2 Money Stock. Estimate 3.1%. Actual 3.2%
  • 19:50 Japanese PPI. Estimate -3.5%. Actual -3.8%

Wednesday (April 13)

  • 8:30 US Core Retail Sales. Estimate 0.4%
  • 8:30 US PPI. Estimate 0.3%
  • 8:30 US Retail Sales. Estimate 0.1%
  • 8:30 US Core PPI. Estimate 0.1%
  • 10:00 US Business Inventories. Estimate 0.1%
  • 10:30 US Crude Oil Inventories. Estimate 0.9M
  • 13:01 US 10-year Bond Auction
  • 14:00 US Beige Book
  • 23:45 Japanese 30-year Bond Auction

Upcoming Key Events

Thursday (April 14)

  • 12:30 US CPI. Estimate 0.2%
  • 12:30 US Core CPI. Estimate 0.2%
  • 12:30 US Unemployment Claims. Estimate 270K

*Key releases are highlighted in bold

*All release times are DST

USD/JPY for Wednesday, April 13, 2016

USD/JPY April 13 at 6:00 DST

Open: 108.70 Low: 108.53 High: 109.30 Close: 109.18

USD/JPY Technical

S3 S2 S1 R1 R2 R3
106.25 107.57 108.37 109.87 110.66 111.50
Click to enlarge
  • USD/JPY posted slight gains in the Asian and European sessions
  • There is resistance at 109.87
  • 108.37 has switched to a support role following gains by USD/JPY on Wednesday
  • Current range: 108.37 to 109.87

Further levels in both directions:

  • Below: 108.37, 107.57, 106.25 and 105.19
  • Above: 109.87, 110.66 and 111.50

OANDA’s Open Positions Ratio

USD/JPY ratio has slight movement towards long positions on Wednesday. Long positions command a strong majority (70%), indicative of strong trader bias towards the pair continuing to climb 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.