USD/JPY Outlook June 10-14

USD/JPY showed some strong downward momentum as it fell about 300 points last week. The pair  quickly dropped  below the 100 line, and  touched  the 95 line before closing out  the week at 97.53.  Current Account  and the BOJ Monetary Policy Statement are the major events this week. Here’s an  outlook  for the Japanese events and an updated technical analysis for  USD/JPY.

The drop of the Nikkei index continues to push the pair to lower levels. As well, weak US employment numbers led to a broadly weaker dollar, and the yen took full advantage and posted sharp gains.

Updates:

• USD/JPY gaps higher and reaches 98.40 on better than expected Japanese data and a stronger Japanese stock market. Current Account jumped to its highest level in over a year, with a surplus of 0.85 trillion yen. This blew past the estimate of 0.39 trillion yen. Final GDP climbed from 0.0% to 1.0%, edging past the forecast of 0.9%.
• Bank Lending edged higher, posting a gain of 1.8%. Final GDP Price pointed to continuing deflation, with a reading of -1.1%. The estimate stood at -1.2%.
• S&P changed the credit outlook for the US from negative to stable. This helped the dollar and sent USD/JPY above 99, extending the recovery.
• Consumer Confidence rose to 45.7 points, beating the estimate of 44.8 points. Economy Watchers Sentiment dropped to 55.7 points, missing the estimate of 56.3 points.
• BOJ fails to feed yen bears – USD/JPY falls – markets wanted new steps, such as extending the loan maturity. The pair slid from the near 99 to near 98. In a policy statement, the BOJ  maintained its monetary policy and stated that the Japanese economy is improving. The central bank voted unanimously to maintain its pledge of increasing  base money  in the amount of  60- 70 trillion yen annually.
• BSI Manufacturing rose sharply to 5.0 points, a 7-month high. The estimate stood at -2.1 points. M2 Money Stock gained 3.4%, just shy of the estimate of 3.5%.
• Core Machinery orders will  be released later on Tuesday. The indicator posted a 14.2% gain last month, but the markets are braced for a sharp decline in the upcoming release, with the estimate standing at -8.3%.
• USD/JPY remains a roller coaster as the markets are very edgy. Dollar/yen fell towards 0.9550 only to recover and test 97 once again. Core Machinery Orders disappointed with a drop of 8.8%.
• CGPI rose 0.6%, pointing to inflation. This was the first release above zero in over a year. The BOJ released its monthly report. The BOJ said that the economy is picking up speed and that the monetary base has increased significantly.
• The yen continues to sparkle, and is trading close to the 94 line. With the strong gains by the yen, there is talk of USD/JPY dropping as low as the 90 level.
• USD/JPY began recovering from the lows, and is battling the 95 levels. Updated technical analysis:  USD/JPY Extends Decline

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

1. Current Account: Sunday, 23:50. Current Account is directly linked to currency demand, as a rising surplus indicates that there is a greater demand for Japanese yen by foreigners. The key indicator continues to register modest surpluses. The indicator  posted a  surplus or 0.34 trillion yen and the estimate for the upcoming release is slightly higher, at 0.39 trillion yen.
2. Final GDP: Sunday, 23:50. Japan’s GDP is a second-tier release, and is released each quarter.  GDP bounced back in Q4 of 2012 with a 0.0%  reading, after a disappointing  Q3 reading of -0.9%. The markets are expecting a strong release  for Q1, with an estimate of a strong 0.9% gain. If the  indicator does meet expectations,  it would be a strong  indication that  the  Japanese economy is  gaining strength and responding  to Abenomics.
3. Consumer Confidence: Monday, 5:00. With the Japanese economy sputtering for years, it shouldn’t come as a surprise that consumer confidence has been weak. However, recent releases show some improvement, although the indicator remains well short of the 50-point level, which indicates optimism. The previous reading came in at 44.5 points, and the June estimate is similar.
4. Economy Watchers Sentiment: Monday, 6:00. This index is based on a survey in which respondents are asked to rate current economic conditions. Perhaps surprisingly, the index has been above the 50-point level since February, indicating optimism about the Japanese  economy. The index came in at 56.5 points in the previous release, and little change is expected in the upcoming reading.
5. BSI Manufacturing Index: Monday, 23:50. This important manufacturing indicator is released on a quarterly basis. Five of the past six releases have been below zero, indicating a pessimistic outlook from Japan’s large manufacturers. Another reading in negative territory is expected, with an estimate of -2.1 points.
6. Monetary Policy Statement and BOJ Press Conference: Tuesday, Tentative. In the BOJ’s previous monetary policy statement, the BOJ stated that the monetary base would  increase by 60-70 trillion yen annually, as the BOJ pumps more money into the economy. Analysts will be  waiting to hear the central bank’s take on the Japanese economy, which has shown some improvement.
7. Preliminary Machine Tool Orders: Tuesday, 6:00. This manufacturing indicator has not posted a gain since May 2012. The indicator came posted a sharp decline of 24.1% in May, and little change is expected in the upcoming reading.
8. Core Machinery Orders: Tuesday, 23:50. This indicator has been all over the map, making accurate predictions a difficult task. The indicator shined last month, jumping 14.2%. The markets are bracing for a sharp downturn, with a an estimate of -8.3%. Will the indicator surprise the markets with another strong  performance?
9. CGPI: Tuesday, 23:50. With the Abe government declaring deflation to be Public Enemy No. 1, inflation indicators have been under the microscope. There was some good news from the corporate inflation indicator, which rose to 0.0% last month. Prior to this, the indicator had been in negative territory, indicating deflation, since April 2012. The estimate for the June reading stands at 0.7%, which would point to inflation creeping in to the  Japanese economy.
10. BOJ Monthly Report: Wednesday, 5:00. This is a third-tier release, and has a muted impact compared to the monetary policy statement. Nevertheless, the markets will be looking for clues as to what moves the BOJ might take with regard to monetary policy.
11. Monetary Policy Meeting Minutes: Thursday, 23:50. The minutes provide details of the BOJ’s most recent policy meeting, and provide insights into the views of monetary and fiscal policymakers. A release which is more hawkish than expected is bullish for the yen.

*All times are GMT.

USD/JPY  Technical Analysis