USD/JPY: Japan is in the tight place
By Elizaveta Belugina
It was a rather calm week for USD/JPY. The pair spent most time consolidating between 118.50 and 117.20. Dollar’s growth was limited by lower than expected US data. On Friday, however, yen fell victim to the economic news. Japan released inflation data which showed that consumer prices increased by only 0.9% – this is the lowest level this year. The reading is not exactly the one you see in the economic calendar: it is adjusted for the April sales tax hike.
There are reasons to believe that Japanese inflation will keep declining, especially given the slumping oil prices. As a result, the market will be expecting new stimulus measures from the Bank of Japan.
Japanese parliamentary elections will be an important topic during the next 2 weeks. Official campaigning will start on Tuesday, Dec. 2. For now Prime Minister’s Abe party is far ahead of its competitors. However, the uncertainty remains as 45% of the voters still haven’t made up their mind.
Japan’s economic calendar will be very light next week. The data that may influence the voters’ mood will come out only on Dec. 8 when the nation releases revised Q3 GDP. According to the initial estimate, Japanese economy contracted by 1.6% on the annual basis.
As a result, USD/JPY will be affected by the 2 sets of factors: on the one hand, the pair will be supported by the expectations of further stimulus from the Bank of Japan, but on the other hand it will be capped by the pre-election uncertainty and the fact that USD is overbought, though as we have recently seen, overbought/oversold technical analysis has become less relevant for this pair. On the H1 chart we may see a pennant which may push the price up to 119.85. Still, the possibility that he pair turns sideways is also high. Support is at 117.20 and 116.50.
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