USD/JPY Outlook Feb 25 – Mar 1

USD/JPY had a bumpy week, and was not able to capitalize on the soft G-20 statement of the dollar-supportive FOMC minutes. Has the pair found its range? Retail sales, housing and inflation data are the major events thus week. Here’s an  outlook  for the Japanese events and an updated technical analysis for  USD/JPY.

The minutes from the Bank of Japan latest monetary policy meeting revealed that the BOJ board members are committed to achieve price stability  and beat deflation. Yoshihisa Morimoto BOJ policymaker remarked that the Bank of Japan resolve to continue with monetary easing as a weaker yen and a climb in global demand would boost the export-reliant  economy. Will the determined policymakers be able to create the desired change in Japan’s economy? The FOMC meeting minutes showed that some members support a withdrawal of stimulus measures. The dollar advanced against most currencies, but the gains against the yen were certainly limited.  Let’s Start:

Updates: CSPI declined by 0.2%, matching the forecast. Japanese Retail Sales will be released later on Tuesday. The yen   took a hit as reports surfaced that Prime Minister Abe was close to choosing Haruhiko Kuroda as the next governor of the Bank of Japan. Kuroda is the head of the Asian Development Bank, and is  a supporter  of aggressive monetary easing. USD/JPY has improved, and is testing the 92 line. The pair was trading at 91.99. Retail Sales declined 1.1%, but managed to beat the forecast of -1.4%. Manufacturing PMI was up, climbing to 4.5 points. The index has been stuck below the 50-point level since last May. Preliminary Industrial Production posted a gain of 1.0%, missing the estimate of 1.6%. Housing Starts also looked weak, rising 5.0%. This was well of the forecast of 8.9%. The markets are waiting for additional releases later in Thursday, including Household Spending and Tokyo Core CPI. USD/JPY is steady, as the pair was trading at 92.37.

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

1. CSPI  : Sunday, 23:50. Japan’s corporate service price index declined 0.4% on a yearly base in December, registering the seventh straight drop. However the pace of decline slowed from a revised 0.5% fall in November due to a rise in transportation fees. CSPI is expected to remain weak in coming months in since firms remain cautious about raising service prices while the weaker yen and higher fuel prices will push up costs.  Another decline of 0.2% is expected now.
2. Retail Sales: Tuesday, 23:50. Japanese retail sales increased 0.4% in December from a year earlier, following 1.2% rise in the previous month. The reading was in line with market predictions. The smaller rise may indicate that consumer spending is weakening. A drop of 1.4% is forecasted this time.
3. Manufacturing PMI: Wednesday, 23:15. Japanese manufacturing activity continued to contract in January reaching 47.7 from 45 in December, a slight improvement indicating move towards recovery. The output component of the PMI index rose to 48.1 from 44.4 in December raising hope that Japanese growth will pick up in the  first half of this year.
4. Prelim Industrial Production: Wednesday, 23:50. Japan’s industrial production increased a seasonally adjusted 2.5% in December 2012 after posting a 1.4% decline in the previous month, another improvement for the Japanese economy. A rise of 1.6% is anticipated.
5. Housing Starts: Thursday, 5:00. Housing starts in Japan edged up 10.0% in December from a year earlier, rising for the fourth straight month. This rise followed by a 10.3% climb in the previous month. The rise occurred due to increased demand before the expected rise in the sales tax. A smaller increase of 8.9% is expected.
6. Household Spending  : Thursday, 23:30. Japanese household spending declined 0.7% in December from a year ago, below the 0.3% drop expected by analysts, and following a 0.2% rise in November. Spending by wage earner households rose 2.2% in December from the same month a year earlier. A gain of 0.5% is expected now.
7. Tokyo Core CPI: Thursday, 23:30. Japan’s core consumer prices declined by 0.2% in December, signaling deflation is still around. This reading was followed by a 0.1% decline in the previous month. Analysts continue to expect bold stimulus steps by the central bank with accordance to the new Prime Minister Shinzo Abe’s agenda. Meanwhile core consumer prices in Tokyo, declined an annual rate of 0.5% in January. However, despite a record trade deficit in 2012 and weak exports due to the debt crisis in Europe and the dispute with China, manufacturers’ sentiment improved in January and it is expected to rise further in coming months due to a recent decline of the yen and the new monetary policy. Tokyo Core CPI is predicted to decline 0.5%, while National Core CPI  is expected to drop 0.2%.
8.  Capital Spending: Thursday, 23:50. Capital spending by Japanese companies continued to expand in the third quarter compared with a year earlier, though the gains were sharply slower than in the previous quarter.  Capital spending, which accounts for roughly 15% of Japan’s total gross domestic product, rose 2.2% in the third quarter from the same period last year, the results of a Ministry of Finance survey showed Monday, down from a 7.7% on-year increase in the previous quarter. A plunge of 7.0% is predicted now.

*All times are GMT.

USD/JPY  Technical Analysis

Dollar/ ¥ began the week with a surge and reached 94.22 before sliding lower. The drops gradually extended to a weekly low of 92.77 before the pair climbed back above 93.

Note that some lines have changes since last week. High in the sky, we find the 97.80 line, which was a peak back in 2009. This is a high level that could be targeted if 95 is breached. Before that, we have 96.90, which was a swing high in July 2009.

A very important line is 94.70 – which capped the pair for long months in early 2010. The February 2013 peak of 94.40 should be noted. A second move towards that line in February fell short.

93.84 was an initial peak for the pair as it climbed higher and has served as a cap afterwards. 92.95 was an earlier resistance line, and later served as support.

92.12 was a peak in the past, and provides some support, as seen in February 2013.  91.20, which capped the pair very temporarily on its way up in January 2013, is a support line before the round figure of 90.

The ultimate support line for now is 90 – a target marked by many analysts and a round number. This line remains close after the break.  Just below, 89.67 capped the pair for several days in January 2013 and is now minor support.

Below, 89.10 was a peak in the summer of 2010, before the pair began descending and is now support.  88.40 is the peak of January 2013 and is a strong support line.

Even lower, 87.60 provided support on a pullback when the pair traded higher in January, after previously working as resistance.

Another recent technical view:  –  USD/JPY Forms Bullish Pattern Consolidation within Strong Uptrend  –  by James Chen

I am neutral on USD/JPY

After the huge rises and after the G-20 meetings, it seems that the pair is set for consolidation in a relatively wide range of 92-96. A relatively dovish BOJ nominee would hurt the yen, but worries about global growth can still remind us that the yen can be a safe haven at times. In the US, the picture is mixed, and growth remains very frustrating.