Japanese Data Surprises Markets – Traders Undecided Ahead Of BOJ/FED

The Japanese Yen was almost unchanged against the U.S dollar in the early European session on Tuesday after having risen to the highest since last Thursday at 101.409. The Yen was powered by upbeat data released earlier today. Meanwhile the greenback nursed losses following the decline on Monday as the case for a September rate increase became “less compelling”.

Adding to Monday’s core machinery orders data that unexpectedly rose by 4.9%, (contrasting considerably with estimates calling for a decline of 2.8%), Japan’s economic data extended the upbeat sentiment today, offering some encouragement to policymakers working towards re-energizing business investment, domestic demand and price growth.

According to a joint survey by the Ministry of Finance and the Economic and Social Research Institute, large Japanese manufacturers turned optimistic over the country’s business conditions in the third quarter. The business survey index (BSI) which measures business sentiment among big manufacturers’ for the July-September period, came out at 2.9, beating expectations for a reading of -6.5.

In other notable data readings, the Japanese economy grew at a pace greater than initially reported. Data released on Thursday indicated that the reading for the annualized growth rate was revised upwards to 0.7% in the second quarter (on a year on year basis). The preliminary reading had reported a 0.2% rate of expansion. On a quarter-on-quarter basis, the world’s third biggest economy expanded by 0.2%, largely due to upbeat capital expenditure and inventories, which outpaced the decline in domestic and overseas demand caused by a strong yen.

The Bank of Japan is scheduled to hold its policy meeting on September 20-21, where it will assess the effectiveness of stimulus measures deployed recently within the economy. On the same day that BoJ policymakers announce the results of their comprehensive assessment, the Federal Open Market Committee will gather in Washington to discuss the next steps within their monetary policy, and any possibility of a rate hike at the meeting.

Fed officials are expected to go into the meeting divided. Besides some governors claiming that the U.S labor market has come close to full employment and urging a rate hike sooner, rather than later, Fed voter Lael Brainard has opined that the Fed should be patient and wait for more evidence of stronger consumer spending and rising inflation. In a speech to the Chicago Council on Global Affairs, Brainard maintained her dovish stance on rate policy, and referring to potential weakness at home and risks of an economic downturn abroad, as potential risk factors.

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Fig: USDJPY D1 technical chart

The Japanese Yen has generally been on a rise against the USD, but is trading sideways around the key level at 102.000. While the RSI is swinging back and forth around the dividing line between bullish and bearish territory, the ADX index has turned lower to 24.95 from the high at 42.57, suggesting no clear opinion being formed in the market. With no data releases scheduled till the end of the day, neutral sentiment is expected to reign in the pair.

Trade suggestion

Sell Limit at 102.500, Take profit at 102.000, Stop loss at 103.050

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