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Dollar/yen remained range bound. Will it make a move, now that there’s a new government in Tokyo? The rate decision and BOJ Press Conference are the main events this week. Here’s an  outlook  for the Japanese events and an updated technical analysis for  USD/JPY.

Last week readings showed improvement in household spending, Average cash earnings, total domestic currency in circulation and housing starts. However retail sales gained 0.7% less than the 1.1% rise predicted, and preliminary industrial production  increased by 0.6%, below the 1.6% expected. Nevertheless these figures show a clear trend of recovery at a moderate pace.

USD/JPY  daily chart with support and resistance lines on it. Click to enlarge:USD JPY Chart September 5 9 2011

Let’s Start:

  1. Rate decision: Wednesday. The  Bank of Japan  maintained its overnight call rate at a range of 0 to 0.1% by a unanimous vote but decided to increase the total size of the Asset Purchase Program by 10 trillion yen to 50 trillion yen claiming further easing steps are required to heal the economy.  The Bank is forecasting real GDP growth of 0.2-0.6% in fiscal 2011, and 2.5-3.0% in fiscal 2012. No changes are expected.
  2. Leading Indicators:  Wednesday, 5:00. Japan’s index of economic indicators increased by 2.5 points in June reaching 103.2 from99.4 inthe previous month indicating an improvement in the Japanese economy as it combines indicators from the job market, consumer sentiment and future economic conditions. An increase to 105.9 is predicted.
  3. Core Machinery Orders: Wednesday, 23:50. Japan’s core machinery orders leaped by 7.7% in June following 3.0% in the previous month indicating capital spending will increase in the coming months. A decrease of 3.7% is forecasted now.
  4. Economy Watchers Sentiment: Thursday, 5:00.Japan’s business watchers sentiment was less optimistic in July dropping 0.5 points from49.0 in June to 48.5. However they were positive about current conditions, showing a 3.0 point increase from49.6 in June to52.6 in July. The drop indicates worries about global financial crisis that may affect future conditions nut the positive reading reflects certainty inJapan’s recovery from the earthquake and tsunami. Expansion to 54.3 is foreseen.
  5. Final GDP: Thursday, 23:50.Japan’s real gross domestic product contracted by 0.9% in the first quarter as predicted. However, compared to a year earlier, GDP decreased by 3.5.  Personal consumption dropped by 0.1% and global demand was reduced by 0.8 percentage point. Although the manufacturing sector is expected to rise dramatically in July-September there are worries about sovereign debt crisis arising from the strong yen. Further contraction of 0.5% is expected.
  6. Household Confidence: Friday, 5:00. Japanese consumer confidence improved further in July rising to 37.0 from a reading of35.3 in June. Although consumer confidence is still below the 50 point line indicating pessimism the trend upward signifies signs of   real recovery in the market. An increase to 41.3 is forecasted.

*All times are GMT

USD/JPY  Technical Analysis

Dollar/yen traded between the 77 and 76.40 lines (discussed last week) before making a limited move above 77 and eventually closed at 76.76 – very range bound.

Technical lines from top to bottom

81,50 was a peak before the recent leg down and has a significant role.  81.06 was a weak line of support in May and slowed down a second move upwards.

80.50 held the pair several times recently and remains a strong and immediate line of resistance on another attempt to settle above 80.  The round number of 80 was broken, but this was short lived, and its strength remains.

79.75 is the historic low of 1995 and played a critical role when the pair collapsed in March. It is now a minor line, after being run through.  Below, 79.30 proved to be a persistent cap for dollar/yen, holding down recovery attempts. also just now. An attempt to break higher resulted in another downwards leg.

78.50 provided some support before another drop, and is now a weak line of resistance.  Further down, 78.20 worked as temporary resistance, and has the same role now.

77.50 was the bottom border of the range, and is set to work as resistance if the pair breaks higher. The pair got close to this line, but didn’t really challenge it now. It is followed by 77, which was a significant cap for the range trading seen for yet another week.

Further below we have the swing record low of 76.25, which was seen on the  huge collapse in March  and was a bottom just now.  The new low of 75.95 is the final frontier in charted territory. Below, the round number of 75 is the next potential cushion.

I am neutral on USD/JPY.

It seems like the Japanese authorities will not intervene unless the pair dives to 75. On the upside, the FOMC decision is awaited. The chances of action are higher now, after the weak NFP.

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