USD/JPY – Yen Improves to 3-Week High, Markets Eye Fed Minutes

USD/JPY has started the week with losses. In the Tuesday session, USD/JPY is trading at 112.11, down 0.51%. On the release front, there are no Japanese events on the schedule, and Japanese bank are closed for a holiday. In the US, today’s sole event was Final Manufacturing PMI, which climbed to 55.1, edging above the estimate of 55.0 points. This marked the highest level since March 2015. On Wednesday, the FOMC will publish the minutes of its December meeting, and we’ll get a look at ISM Manufacturing PMI.

Japanese inflation indicators continue to point upwards. The final Japanese event of the year was Bank of Japan Core Inflation, which the BoJ relies on to measure inflation. The indicator climbed 0.6%, edging above the estimate of 0.5%. This marked a 3-month high. Earlier last week, other inflation indicators also beat their estimates, underscoring that inflation is on the move. Still, the BoJ has made it abundantly clear that it will not tighten its ultra-accommodative monetary policy until inflation is close to the Bank’s 2 percent inflation target. The minutes of the October meeting indicated that most members favored a continuation of the current ultra-accommodative policy. This could weigh on the yen, as other central banks, such as the ECB, the Federal Reserve and the Bank of Canada have tightened policy in recent months, widening divergence with the Bank of Japan.

Traders can expect the Federal Reserve in the headlines a fair amount early in the New Year. Investors will be monitoring the Fed on Wednesday, with the release of the minutes of the December meeting. At that meeting, the Fed raised rates by 25 basis points, to a range between 1.25% and 1.50%. The hike marks a vote of confidence in the US economy, and if the minutes are hawkish, the US dollar could gain ground. If the US economy continues to expand at a clip exceeding 3%, the Fed is expected to raise rates up to four times in 2018. Currently, the CME Group has priced in a January rate hike at 98.5%. Although inflation remains well below the Fed target of 2.0%, outgoing Fed Chair Janet Yellen and other FOMC members have said that they expect that the strong labor market will lead to higher inflation. Although this is yet to materialize, of significance to the markets is the commitment of the Fed to press ahead with rate hikes, despite low inflation.

USD/JPY Fundamentals

Tuesday (January 2)

  • 9:45 US Final Manufacturing PMI. Estimate 55.0. Actual 55.1

Wednesday (January 3)

  • 10:00 US ISM Manufacturing PMI. Estimate 58.3
  • 14:00 US FOMC Meeting Minutes

*All release times are GMT

*Key events are in bold

USD/JPY for Tuesday, January 2, 2018

USD/JPY January 2 at 11:05 EDT

Open: 112.69 High: 112.79 Low: 112.06 Close: 112.22

USD/JPY Technical

S3 S2 S1 R1 R2 R3
109.11 110.10 111.53 112.57 113.55 114.59

USD/JPY ticked lower in the Asian session. The pair declined considerably in the European trade and is showing limited movement in the North American session

  • 111.53 is providing support
  • 112.57 has switched to a resistance role after losses by USD/JPY on Tuesday

Current range: 111.53 to 112.57

Further levels in both directions:

  • Below: 111.53, 110.10 and 109.11
  • Above: 112.57, 113.55, 114.59 and 115.50

OANDA’s Open Positions Ratios

In the Tuesday session, USD/JPY ratio is almost an even split between long and short positions. This is indicative of a lack of trader bias as to what direction USD/JPY takes next.

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.

Kenny Fisher

Kenny Fisher

Currency Analyst at Market Pulse
Kenny Fisher joined OANDA in 2012 as a Currency Analyst. Kenny writes a daily column about current economic and political developments affecting the major currency pairs, with a focus on fundamental analysis. Kenny began his career in forex at Bendix Foreign Exchange in Toronto, where he worked as a Corporate Account Manager for over seven years.