Masaaki Shirakawa speech at the Foreign Correspondents Club of Japan and Core Machinery Orders are the main events this week. Here’s an outlook for the Japanese events and an updated technical analysis for USD/JPY.
Low growth and deflation discourages borrowing in the private sector creating a vicious cycle where deflation increases the real value of rising public debt. Unless the private sector regains confidence in the economy, This situation might continue for some time yet.
USD/JPY daily chart with support and resistance lines marked. Click to enlarge::
Masaaki Shirakawa speaks: Monday, 3:30. BOJ Governor Masaaki Shirakawa is due to speak at the Foreign Correspondents Club of Japan, in Tokyo. Following his board decision to raise Japan’s growth rate to 3.3% valuable information may be given concerning future monetary policy.
Leading Indicators: Monday, 5:00. The leading composite index, a key gauge of Japan’s current economic conditions, rose 3.3 points to 101.0 for the first time in three months. However the Cabinet Office maintained its overall view that the coincident index figure suggested the economy is at a standstill. Another rise to 101.5% is predicted now.
Bank Lending: Monday, 23:50. Bank lending fell for a 13th straight month in December despite the lenient monetary policy and marginal interest rates. Total lending fell by 1.9% following 2.0% drop in the previous month. A similar figure is expected now.
Economy Watchers Sentiment: Tuesday, 5:00. Sentiment among economy watchers in Japan rose further last December by 1.5 points to 45.1 from another rise of 43.6 in November. Economy watchers observed poor consumer spending but noted that expensive items sold well during the year-end shopping season. Another rise to 45.6 is predicted now.
Household Confidence: Wednesday, 5:00. Japanese Household Confidence reached 40.1 in December, weaker than the 41.7 expected and prior reading of 40.4. It is a leading indicator of consumer spending, which accounts for a majority of overall economic activity. Arise to 40.5 is expected now.
Core Machinery Orders: Wednesday, 23:50. Core machinery orders slides 3.0% in November compared to the previous month. This was below forecasts for a 2.0% increase following the 1.4 percent monthly decline in October. On an annual basis, core machinery orders rose 11.6 percent. A rise of 5.2% is predicted now.
* All times are GMT.
USD/JPY Technical Analysis
Dollar/yen fell early in the week, and was under 81.80, a line that didn’t appear last week. It then recovered and closed at 82.16, under the 82.34 line.
Looking down, the barrier of the past week, 81.80, provides immediate support. It’s followed by 80.87, which worked as support back in November and now has the same role.
Even lower, 80.40, was the lowest close ever and by 79.75, the lowest intra-day level, reached back in 1995.
Looking up, 82.34 has a small role once again, after preventing a break higher. It was a support line in the past. Above, 82.87 was the line where the BOJ intervened to weaken the yen, is the first line of resistance line, although it’s rather weak now.
Higher, more important resistance appears at 83.40 which capped the pair as such in recent weeks. Higher, 84.50 is the highest level since October and is a very tough resistance line.
Above, 85.93 was the highest level the pair touched after the BOJ intervention in September. It’s followed by86.34 and 87.02 were support lines on the way down, and now work as minor resistance.
Even higher, strong resistance is found at 88.12, which worked in both direction last summer, and then by 89.15 which capped USD/JPY at that same period.
I am bullish on USD/JPY.
The weakness of the Japanese economy, the low interest rate, the improvement in the US economy (lower unemployment rate) and the higher US yields all show the path to an upwards reversal.
For a broad view of all the week’s major events worldwide, read the USD outlook.
For EUR/USD, check out the Euro/Dollar forecast.
For GBP/USD (cable), look into the British Pound forecast.
For the Australian dollar (Aussie), check out the AUD to USD forecast.
For the New Zealand dollar (kiwi), read the NZD forecast.
For USD/CAD (loonie), check out the Canadian dollar.