USD/JPY Forecast Sep. 1-5

USD/JPY  remained on high ground in the last week of summer. As traders return, the main event this week is the rate decision in Japan. Will Kuroda signal new moves?  Here is an outlook on the major events moving the yen and an updated technical analysis for USD/JPY.

US data was mostly positive, continuing the trend seen beforehand. Consumer confidence was up, and durable goods orders shined, while new home sales disappointed. The stronger GDP growth in the US was unable to maintain the gains of the pair. In Japan, inflation numbers did not surprise, with Tokyo Core CPI standing at 2.7%. However, household spending disappointed with a huge fall of 5.9% and the unemployment rate rose once again. The yen did enjoy the announcement by Ukraine that Russia invaded. Safe haven flows are likely to continue.

USD/JPY graph with support and resistance lines on it. Click to enlarge:

1. Capital Spending: Sunday, 23:50. Capital expenditures have been on the rise in the past 3 quarters  in year over year terms. After a leap of 7.4% in Q1, towards the sales tax hike, another rise of 3.8% is expected now, despite the tax hike.
2. Final Manufacturing PMI: Monday, 1:35. According to the initial manufacturing purchasing managers’ index published by Markit, growth has somewhat accelerated in August, with the score rising to 52.4 points. The final figure is likely to confirm this.
3. Monetary Base: Monday, 23:50. The Bank of Japan publishes this measure of  the total money held at its coffers and in  circulation as it is targeting it. The y/y rise has been on the slide lately, with the figure stabilizing at  42.7% in July. A similar number is expected in August: 43.7%.
4. Average Cash Earnings: Tuesday, 1:30. The salaries hat workers make reflects on their expenditure and on the economy. A  rise of 1% was recorded in June (after revisions). A slower growth rate is expected in July: 0.9%. This often reflects core inflation.  
5. Rate decision: Thursday morning. BOJ governor Kuroda recently said that his institution is halfway through to  achieving the inflation target of 2%. Does this imply continuing the current policy as usual? This is what is expected. No stimulus is likely at this moment.
6. BOJ Monthly Report:  Friday, 5:00. In its monthly report, the central bank has an  opportunity to reflect on the way it sees the economy at the  moment, regarding growth, inflation, etc.
7. Leading Indicators: Friday, 5:00. This composite index is lagging, yet it provides a good  overall picture of the economy. The figure  recovered to 105.5% in June and could  continue  improving now in July, to 107.2%.  

* All times are GMT

USD/JPY Technical Analysis

Dollar/yen started the week with a Sunday gap and reached 104.25, but was unable to sustain the break above resistance at 104.11 (mentioned last week). It quickly closed the gap and returned to trade around the round 104 figure.

Live chart of USD/JPY:

Technical lines from top to bottom

105.44 was the highest level seen since Abe came into power. 104.92 is the next line, after it capped the pair around the turn of the year.

104.25 is the August 2014 high and serves as strong resistance. It is followed by 1.0350, which was the bottom of the range after the big leap.

The round number of 103 has shown its strength in late July 2013. 102.70  was a stubborn peak during February and now switches to support.

In the narrower  range, 102.30 is weak resistance. 102.00  is a round number that supported the pair several times and remains and important line that the pair seemed to like very much – the “magnet”. 101.60 is weak support in the narrower range.

I am neutral  on  USD/JPY

On one hand, Japanese numbers are worsening and the US conditions are improving, with  a growing yield gap. On the other hand, the geopolitical risks  are not fully represented and the yen could further gain. We could see some choppy trading ending with the pair maintaining its high ground.

More: listen to our podcast about Japan:

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Further reading: