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The yen returned to its strength once again, making gains against the greenback. New QE from the BOJ didn’t help. Household Spending, inflation data, and Retail sales are the main events this week. Here’s an  outlook  for the Japanese events and an updated technical analysis for  USD/JPY.

Last week Last week The Bank of Japan followed the U.S. Federal Reserve initiative and declared a new stimulus plan. The weakening global demand forced the BOJ to expand its asset purchase program by 10 trillion yen to a total of 80 trillion yen, in an effort to stimulate its economy. Will this step help Japan to stay afloat in these times of global uncertainty?

Updates: CSPI dropped 0.3%, slightly more than the estimate of a o.2% decline. The yen rally has taken a breather, as USD/JPY was trading at 77.78.  A host of releases will be published later on Thusday, including Household Spending and Retail Sales. USd/JPY is steady, as the pair was trading at 0.7767.

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

USD/JPY Technical Analysis September 24 28 2012

  1. Monetary Policy Meeting Minutes: Sunday, 23:50. The reason behind the BOJ’s decision to further ease its monetary policy and downgrade its economic outlook will be detailed in the current monetary policy meeting minutes release. The long-term growth forecasts are also expected to decline whereas deflation end is no where in sight.
  2. CSPI: Monday, 23:50.Japan’s corporate service price index dropped 0.2% on a yearly base in July, following a 0.4% decline in the previous month. This decline was prompted by lower costs of transportation and advertising services. Excluding transportation the index remained flat in July. Another drop of 0.2% is expected now.
  3. Manufacturing PMI: Thursday, 23:15.  Japanese manufacturing activity continued to decline reaching47.7 in August from47.9 in July, the lowest level in 16 months, since global slowdown decreases exports. This was the third month below the 50 point line indicating contraction. The output factor of the PMI index dropped to 46.9 from July’s 47.3, also the lowest reading since April last year.
  4. Household Spending: Thursday, 23:30. Japanese household spending increased by 1.7% in July from a year earlier, beating forecasts for a 1.2% rise. This climb followed a 1.6% increase in June, indicating an upward trend in domestic activity. Another gain of 1.2% is predicted.
  5. Tokyo Core CPI: Thursday, 23:30. The Tokyo Core CPI excluding fresh fruit, dropped -0.5% in August following 0.6% decline in the previous month. The reading was a bit lower than the 0.6% decline forecasted, indicating deflation is here to stay for the time being, given the current global slowdown and the strong yen. A smaller decline of 0.2% is forecasted this time.
  6. Industrial Production: Thursday, 23:50. Preliminary reading for industrial production showed a 1.0% decline in August which was downwardly revised to 1.2%, in light of weak industrial production. Economists anticipated a 1.7% increase in production. In case global markets continue to weaken,Japan’s economy will be dragged to yet another recession. A drop of 0.4% is anticipated now.
  7. Retail Sales: Thursday, 23:50. Japanese retail dropped for the first time in 8 months by 0.8% in July after posting a 0.2% gain in the previous month. Economists expected a lower decline of 0.1%. This plunge indicates a possible slowdown in private consumption which will continue once the benefits for fuel-efficient car purchasing will wane. Another decline of 0.3% is expected now.
  8. Housing Starts: Friday, 5:00. Housing starts in Japan plunged 9.6% in July, preceded by a 0.2% drop in June. The reading was slightly better than the 9.9% decline predicted by analysts upon the termination of the government’s economic stimulus for environmentally-friendly homes. Another drop of 7.2% is forecasted.

USD/JPY  Technical Analysis

$/yen began the week by another attempt to trade higher, and it crossed the 79 line. However, also this move failed and the pair eventually fell towards support at 78 (mentioned last week).

Technical lines from top to bottom

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.

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. It proved its strength as resistance in June 2012, more than once.

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. It is stronger now.

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. 79.05 capped the pair in September 2012 and similar levels were seen in the past. Despite being temporarily overrun, the line still matters.

78.80 proved its strength as resistance in August 2012 again and again. 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.

77.50 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.

Downtrend Resistance

As you  can  see on the chart, the pair is trading under a downtrend resistance line formed from mid August.

I am bullish on  USD/JPY.

With an expected improvement in Europe, the safe haven yen has some room for losses at these levels. In the longer run, QE3 will continue weighing on the pair, especially as US figures weren’t too good.

Further reading: