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Dollar/yen, the pair of safe haven currencies, was a relatively stable pair in the current storm, and it turned stronger this time. Is it settling in a range or is the dollar about to gain here as well? Household Spending, Retail sales and Prelim Industrial Production   are the major events this week. Here’s an  outlook  for the Japanese events and an updated technical analysis for  USD/JPY.

Last week,  Japanese Finance Minister  Jun Azumi  asked the BOJ to provide further monetary stimulus to fight deflation and reach the Government’s bench mark 1.0% inflation goal, however the Bank of Japan refrained from adding further asset-purchases following the 10 trillion yen expansion introduced last month, including a credit-lending program at 30 trillion yen. The policy board also maintained the key  overnight lending rate  at 0.1%. Will the BOJ policy continue in its cautious moves or cave in to government pressures calling for more drastic measures.

Updates: The BOJ released the Monetary Policy Meeting Minutes on Sunday. The report provides details of the factors involved in the Bank’s decision on  the  setting of interest rates. CSPI surprised the markets with a 0.2% jump, as the market had  called for  a contraction in the index.  This was the best performance since September 2008. USD/JPY was trading at 79.38. Household Spending rose 2.6%, a notch above the market forecast of 2.5%. The Unemployment Rate nudged up, reaching a level of 4.6%. The market estimate stood at 4.5%.   After an outstanding reading in April, Retail Sales fell to 5.8%. This was below the market forecast of 6.2%.   Manufacturing PMI was unchanged, posting a reading of 50.7 points. BOJ Gov Shirakawa delivered a speech in Tokyo. USD/JPY was trading just above the 79 level, at 0.7909. Prelim Industrial Production disappointed, climbing just 0.2%. The markets had forecast a 0.6% jump.  Average Cash Earnings fell to 0.8%, below the market estimate of 1.1%.  Housing Starts sparkled with a 10.3% jump, shocking the markets, which  had  estimated a 3.3% increase. This was the indicator’s best performance since September 2011.  The yen strengthened, as investors  jittery about the EZ situation opt for safe haven currencies. USD/JPY was trading at 78.61, the pair’s lowest level since February.

USD/JPY  daily chart with support and resistance lines on it. Click to enlarge:USD/JPY Chart May 28 June 1 2012

  1. Monetary Policy Meeting Minutes: Sunday, 23:50. The last BOJ monetary policy meeting reveals that all members agreed that expanding asset purchases is positive for financial markets, and called for a steady implementation of the asset purchase program. They also agreed that the BOJ needs to do everything in its power to achieve the 1.0% inflation target and beat deflation. Another decision was to maintain the low interest rate of 0.1%. Nevertheless, the Bank of Japan expects the next fiscal year inflation rate will still be lower than1% target rate.
  2. Household Spending: Monday, 23:30. Japanese household spending climbed 3.4% in March from a year earlier, following 2.3% gain in the previous month but lower than the 3.7% increase predicted by analysts. However this was the biggest increase since March 2010 indicating increased spending and rising market activity. Another gain of 2.5% is expected now.
  3. Retail Sales: Monday, 23:50. Japanese retail sales surged 10.3% in March following 3.4% climb in February, broadly within predictions indicating increased industrial output and improvement in economic activity. The increase was led by a surge in car sales after government subsidies were introduced for more energy efficient cars. However moderate export demand still weighs onJapan’s economic growth. An additional limb of 6.2% is anticipated now.
  4. Manufacturing PMI: Tuesday, 23:15. Japanese manufacturing activity increased moderately in April reaching a seasonally adjusted 50.7 from at a slower pace from 51.1 the month before amid slow export orders. However the index remained above the 50 point line indicating expansion in the Japanese market.
  5. Industrial Production: Wednesday, 23:50. Industrial production in Japan edged up a seasonally adjusted 1.0% after a 1.6% drop March. This climb was lower than the 2.3% increase forecasts predicted. Production is expected to rise in April but drop in May due to sluggish export orders.
  6. Average Cash Earnings: Thursday, 1:30. Japanese total cash earnings edged up 1.3% in March from a year earlier following a small gain of 0.1% in February.      Overtime pay increased by 4.4%, the biggest rise since December 2010.  A smaller increase of 0.6% is predicted now.
  7. Capital Spending: Thursday, 23:50. Japanese companies’ capital spending soared unexpectedly by 4.9% in the fourth quarter of 2011, the biggest gain in more than five years. The increase was contrary to predictions for a 6.4% decline. Reconstruction demand was the biggest contributor to the increase in capital spending. Another addition of 1.3% is predicted.

* All times are GMT

 

USD/JPY  Technical Analysis

$/yen started the week by bouncing off the 79 level, a line that didn’t appear last week and now joins the charts. It continued higher, but couldn’t settle above 80, before closing at 79.66, just above the pivotal line of 79.60.

Technical lines from top to bottom

82.87 was the line where the BOJ intervened in September 2010, and also worked in both directions afterwards. It worked as support when the pair traded higher and remains a cap. 81.80  served as support for the pair at the end of March 2012 and is now strong resistance after capping the pair also in mid April in more than one instance.

Further below 81.43 is stronger after serving as resistance for a recovery attempt. 80.60 provided support for the pair around the same time, and served as a bouncing spot for the next moves.

80.20 separated ranges in May 2012 and remains another barrier after 80 on the upside. The round number of 80 is psychologically important, even though it was crossed several times in recent months.

79.60 was a double bottom in May 2012 and is now a pivotal line within the range. The round number of 79 served as a bottom in May 2012 and could emerge as a line defended by the Japanese authorities.

78.30 capped a second recovery attempt in November, after the intervention and had an important role earlier as well, working as support. It is a key point on the downside.

77.50 was the bottom border of a range the pair had at the end of 2011. It is followed by 77, which is only minor support.

76.60 was a cushion for the pair at the beginning of the year and is rather strong. 76.26 is the next line on the downside after working as a support quite some time ago.

75.95 was an all time low and was the catapult for the pair’s rally during 2012. The current all-time low of 75.57 is the last line for now.

I remain bullish on  USD/JPY.

The strength of the US dollar, together with the desire of Japan for a weaker yen and the better US economy balance the safe haven flows caused by the growing European mess. A bit more stability can push the pair higher. More worries from Spain can’t really push it much lower.

Another note: USD/JPY so far justifies its title as the  most predictable currency pair for Q2.

Further reading: