USD/JPY Outlook November 26-30

Dollar/yen continued its rally, reaching a new 7 month high. The strong words from LDP candidate Shinzo Abe about fiscal and monetary expansion certainly weakens the yen. BOJ Governor Masaaki Shirakawa’s speech, Tokyo Core CPI   and retail sales are among the main market movers this week. Here’s an  outlook  for the Japanese events and an updated technical analysis for  USD/JPY.

Updates: The yen weakened after minutes of the recent BOJ policy meeting indicated that several board members of the central bank proposed that the BOJ take a more activist stance and a stronger commitment to monetary easing. However, most members opted to take a more cautious approach. CSPI declined by 0.7%, just below the estimate of 0.6%. USD/JPY has edged upwards, as the pair was trading at 82.18. Retail Sales were down, dropping by 1.2%. This was lower than the estimate of a 0.7% decline. There are a host of releases later on Thursday, including Household Spending and Preliminary Industrial Production.  The yen has edged upwards, as USD/JPY was trading at 82.11.

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

Last week The Bank of Japan concluded its policy meeting with a unanimous vote to keep interest rates and asset purchases unchanged, following two months of expansion of the asset buying program.  There is an open dispute between BOJ Governor Masaaki Shirakawa (fighting for independence) and the likely elected Prime Minister Shinzo Abe concerning the BOJ’s monetary policy. Shinzo Abe claims the BOJ should continue its easing measures and be subordinate to the Japanese Government. Governor Masaaki Shirakawa called Abe’s proposals to weaken the JPY unrealistic and claims BOJ’s independence should be respected.

1. Monetary Policy Meeting Minutes: Sunday, 23:50. Bank of Japan minutes from its October policy meeting revealed, Japanese government made demands of the Bank of Japan to interfere in foreign monetary policies in the US, Europe and emerging economies to respond to downside risks to Japanese economy, as well as achieve a CPI inflation rate of 1% “as promptly as possible”.
2. Masaaki Shirakawa speaks: Monday, 1:00. Bank of Japan governor is due to hold a press conference, in Nagoya in which he will continue to argue that unlimited money- printing will increase national debt and that the BOJ should remain independent. His words may cause volatility in the market.
3. CSPI: Monday, 23:50. Japan’s corporate service price index dropped 0.5% in September after a 0.3% decline in the preceding month. This yearly indicator shows continuous decline in prices of transportation and leasing services. A further decline of 0.6% is anticipated.
4. Retail Sales: Wednesday, 23:50.  Japan’s retail sales increased for the second consecutive month in September, rising 0.4% following a 1.7% surge in the previous month. He reading was lower than the 1.3% gain expected by analysts. A drop of 0.7% is expected this time.
5. Manufacturing PMI: Thursday, 23:15. Japanese manufacturing activity decreased sharply in October to 46.7 from 48 in September, amid falling exports and weaker domestic demand.  The output component of the PMI index dropped to 46.4 in October from 47.1 in September.
6. Household Spending: Thursday, 23:30. Household spending dropped 0.9% on year in September, following a 1.8% gain in August. This reading missed forecasts for an increase of 0.8%. Spending on education plunged 23.7% while housing dropped 14.5%. A further 0.8% decline is expected now.
7. Tokyo Core CPI: Thursday, 23:30. Core consumer prices in Tokyo, declined 0.4% in October following the same reading in September, a bit better than the 0.5% drop predicted by analysts. Meanwhile National Core CPI declined 0.1%, better than the 0.2% decline predicted by analysts. Rises in gasoline prices and electricity bills detained decline in core CPI , but declines accelerated for core-core CPI, indicating deflationary pressure continues. Tokyo Core CPI is expected to decline 0.4%, while the national core CPI is expected to drop 0.1%.
8. Industrial Production: Thursday, 23:50. Industrial output in Japan edged down 4.1% in September, missing predictions for a 3.1% decline , following a 1.6% decline in August indicating Japan’s industrial sector is on a downward trend. Transport equipment, general machinery, iron and steel where the weakest. A smaller decline of 1.8% is predicted now.
9.  Housing Starts: Friday, 5:00. Housing starts in Japan edged up 15.5% in September from a year earlier after three months of declines. However, the increase was slower than the 16.6% rise forecast by economists. Another gain if 10.3% is expected now.

*All times are GMT.

 USD/JPY  Technical Analysis

$/yen started the week with a struggle around the 81.43 line (mentioned last week). It then made an upwards move and found resistance only at the 82.87 line.

Technical lines from top to bottom

We start from higher ground this time: 87 is a round number and was also a support line back in 2010. It is followed by 86.27, which served as resistance, also in 2010.

85.50 is a high peak seen back in early 2011. 84.20 is a more recent swing high, seen in early 2012.

It is followed by 83.34 which capped the pair in April and also beforehand. 82.87 is a veteran line – that’s where the BOJ intervened for the first time back in 2010.

81.80 capped the pair in April, and is the level of the “shoulders” in the upwards thrust seen at the time. 81.43 is stronger after serving as resistance for a recovery attempt back in 2011, and capped a move higher in November 2011.

80.70 worked as resistance back in June and in a stroner manner in October. It turns into support now.  The round number of 80 is psychologically important, even though it was crossed several times in recent months.

79.70 was a cap was seen in June 2012. It proved its strength as resistance once again in July 2012 and proved critical before the downfall in August 2012. It strengthens again after capping the pair during November 2012.. 79.05 capped the pair in September 2012 and similar levels were seen in the past. Despite being temporarily overrun, the line still matters, especially after working as support in November 2012.

78.80 proved its strength as resistance in August 2012 again and again. The last attempt at the beginning of October should monitored. The round number of 78 is now stronger support after being the bottom of the range  and is becoming stronger after working as a cushion also in September 2012.

77.40 was the extended low line in September 2012, until the pair rebounded. It is followed by 77, which is only minor support.

More Technical Views:

• Forex Analysis: USD/JPY Breaks Out to 7-Month High  – by James Chen
• USD/JPY at 7 Month High – Could be in Overbought Territory

I turn from bullish to neutral on  USD/JPY.

After another surge higher, the pair could stop once again for some consolidation. A positive outcome in Europe is already priced in. So, there isn’t much room to buy EUR/JPY on a deal, while there’s more room on the downside for both EUR/JPY and USD/JPY.