USD/JPY – Yen Steady, Japanese Consumer Spending Reports Next

USD/JPY is showing little movement on Monday, as the pair trades at 113.40 in the European session. On the release front, today’s highlight is Pending Home Sales. The markets are expecting the indicator to bounce back with a strong gain of 1.2 percent. We’ll also get a look at two consumer spending indicators – Core PCE Price Index and Personal Spending. Japan will release key consumer spending events – Household Spending and Retail Sales.

The Bank of Japan took radical action in January and adopted negative interest rates, but inflation levels remains anemic and the threat of deflation is a nightmarish scenario for policymakers. Tokyo CPI, a key indicator, disappointed with a weak reading of -0.3 percent, below the estimate of -0.2 percent. The indicator has mustered just one gain since June 2015, underscoring a sluggish economy which has failed to generate any inflation. The Chinese slowdown and collapse in oil prices have exacerbated soft inflation levels. Although there is talk of the BoJ making some aggressive easing moves at its April policy meeting, it is questionable whether the BoJ has any monetary ammunition left, given that lowering rates into negative territory has failed to kick-start the economy.

US Final GDP posted a gain of 1.4 percent in the fourth quarter, supported by a climb in household spending, a key driver of economic growth. This figure beat the estimate of 1.0 percent, but was lower than the 2.0 percent gain in Q3. With the global slowdown taking a bite out of US exports, strong consumer spending has been the engine behind the economy’s growth. The economy grew at a pace of 2.0 percent in 2015, identical to the figure of 2014. What can we expect for the first quarter of 2016? The financial markets were in turmoil in the early weeks of the year, so GDP in Q1 will be hard-pressed to post similar numbers.

US durable reports in February pointed to a manufacturing sector which continues to struggle. Core Durable Goods Orders posted a decline of 1.0%, well short of the forecast of a 0.2% drop. This marked the indicator’s third decline in four months. Durable Goods Orders was even worse, with a reading of -2.8%, slightly above the estimate of -3.0%. This slowdown is reflective of weak global demand, which has had a strong negative impact on the manufacturing sectors of developed economies worldwide, including the US.

The US dollar posted broad gains last week, as hawkish statements from Federal Reserve members regarding a rate hike surprised the markets. After a dovish policy statement from the Fed, a market hike did not seem likely until before June. The markets have quickly changed this assessment after some Fed officials called for an April hike. Fed chair Janet Yellen will make a speech in New York on Tuesday, and the dollar could jump if Yellen does not rule out an April move.

USD/JPY Fundamentals
Monday (March 28)

• 8:30 US Core PCE Price Index. Estimate 0.2%
• 8:30 US Personal Spending. Estimate 0.2%
• 8:30 US Goods Trade Balance. Estimate -62.3B
• 8:30 US Personal Income. Estimate 0.1%
• 10:00 US Pending Home Sales. Estimate 1.2%
• 19:30 Japanese Household Spending. Estimate -1.8%
• 19:30 Japanese Unemployment Rate. Estimate 3.2%
• 19:50 Japanese Retail Sales. Estimate 1.6%

Upcoming Key Events
Tuesday (March 29)

• 10:00 US CB Consumer Confidence. Estimate 93.9 points

*Key releases are highlighted in bold
*All release times are DST

USD/JPY for Monday, March 28, 2016

USD/JPY March 28 at 9:10 DST
Open: 113.46 Low: 113.36 High: 113.69 Close: 113.44

USD/JPY Technical

• USD/JPY has shown limited movement in the Asian and European sessions
• 112.48 is providing support
• There is resistance at 113.86
• Current range: 112.48 to 113.86

Further levels in both directions:

• Below: 112.48, 111.50, 109.87 and 108.37
• Above: 113.86, 114.65 and 115.59

OANDA’s Open Positions Ratio
USD/JPY ratio is unchanged at the start of the week. Long positions command a strong majority (61%), indicative of strong trader bias towards the pair moving to higher levels.