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Currency Analyst since 2010

USD/JPY: outlook for October 3-7

USD/JPY rose from 100.00 to 102.00, but remains limited on the upside by 2016 resistance line. Us dollar was driven higher against yen as Hillary Clinton’s victory at the first US presidential debate and OPEC deal to cut oil production initially improved the market’s risk sentiment. Then, however, demand for the yen as a safe haven increased once again on the back of problems with Deutsche Bank and the doubts that oil exporters will really reduce output.

Inflation figures released in Japan came below forecasts. Core consumer prices contracted by 0.5%. Normally such figures would make investors think that the Bank of Japan will intensify its monetary easing. However, there’s speculation that the regulator has reached a limit in stimulus and is no longer able to make the yen decline. Last week the Bank of Japan said that it would target 10-year bond yield at levels around 0%, but this week the market pushed the yield to -0.09%. In order to stick to its target, the BOJ would have to reduce its massive bond purchase program. Such reduction would be interpreted as a sign that the regulator won’t ease policy further, so the yen will strengthen. For now, central bank officials backed away saying that bond yield target isn’t strict and there’s no need to cut stimulus. Still, the doubts about the regulator’s efficiency represent a negative factor for USD/JPY.

Next week Japan will publish Tankan manufacturing & services PMIs on Monday. The pair will be driven by the market’s sentiment and US labor market data. Technical levels for the pair remain pretty much the same – 102.00, 103.30 and 104.00 as resistance and 100.00 and 99.00 as support. Despite the recent gains of the pair, USD/JPY will likely aim at lower levels testing support.  

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