USDJPY was confined to a narrow range last week, trading off of its weekly high of 92.07 made on Monday as the Japanese Current Account came out at 1.38T versus expectations of 1.42T. Also Monday, the Japanese M2 Money Stock showed an expansion of 3.1% year on year, versus an expected 2.8% rise.

USDJPY went on to make its weekly low on Tuesday, despite Japanese Leading Indicators coming out at a slightly disappointing 101.7% versus an expected number of 102.8%, along with a minor downward revision to the previous number to 101.9% from 102.8%. Tuesday also had Japanese Core Machinery Orders which came out at an impressive 4.0% month on month, versus an expected 1.2% increase.

On Wednesday, the Japanese GDP number came out slightly better than the consensus at 1.2%, versus the 1.1% expected increase. Thursday saw USDJPY rise as Japanese Household Confidence came out at 42.8, more or less in line with the expected number of 42.3.

On Friday, in his first policy speech as Prime Minister, Naoto Kan addressed the Japanese Parliament and warned that the country was risking default on its borrowing if it did not reign in its massive public debt. The new Prime Minister commented on Japan's public debt, which is now twice the size of Japanese GDP, since it was becoming a top priority because of the financial markets' current adversity to sovereign debt issues.

Kan stated, "We cannot sustain public finance that overly relies on issuing bonds," adding that, "As we can see in the Eurozone confusion that started from Greece, there is a risk of default if the growing public debt is neglected and if trust is lost in the bond market."

USDJPY then went on to close last week on Friday at 91.67, down a mere 2 pips, and showing virtually no change on the week.

Fundamental Outlook for USDJPY

The primary market-moving economic data releases and policymaker speeches scheduled for this coming week in Japan and the United States are as follows:

Japan:

Economic releases this upcoming week in Japan include some important data, featuring the Japanese Rate Decision probably coming out on Tuesday.

Monday begins the week with Revised Industrial Production (1.4% M/M) and the BSI Manufacturing Index (7.8) scheduled for release.

Tuesday has the tentatively scheduled Monetary Policy Statement from the BOJ, along with an associated press conference at which the market is currently expecting the central bank to leave its Overnight Call Rate benchmark unchanged at the 0.10% level.

Wednesday has the BOJ's Monthly Report scheduled for release, along with Tertiary Industry Activity (2.5% M/M).

Thursday has nothing of note, and Friday ends the week with the Monetary Policy Meeting minutes due out from the BOJ.

United States:

The economic release calendar for the United States this week is quite active and features some key inflation data, including PPI on Wednesday and CPI on Thursday.

Monday begins the week with a speech by FOMC Member Bullard in Tokyo, who will also be speaking in Hong Kong on Tuesday.

Tuesday also offers Import Prices (-1.1% M/M), the Empire State Manufacturing Index (20.1) and TIC Long-Term Purchases (77.3B). The NAHB Housing Market Index (22) is also scheduled tentatively for Tuesday.

These numbers will be followed on Wednesday by the featured release of the Producer Price Index or PPI (-0.5% and 0.1% Core M/M), as well as Building Permits (0.63M), Housing Starts (0.65M), Industrial Production (0.9%M/M) and the Capacity Utilization Rate (74.6%). In addition, Fed Chairman Bernanke is scheduled to make a speech in New York.

Thursday is also a weekly highlight, featuring the important Consumer Price Index or CPI data (-0.2% and 0.1% Core M/M), as well as the Current Account (-120B), Initial Jobless Claims (454K), the Philly Fed Manufacturing Index (21.3) and the CB's Leading Index (0.4% M/M). This will end the week since Friday has nothing of note due out.

The Technical Picture for USDJPY

On the technical front, USDJPY continued to trade inside a wide 87.95-94.97 consolidation band last week, just trading up to reach 92.07 before being sent back down to make a low on Tuesday of 90.83. USDJPY closed the week toward the upper side of that range at 91.67, almost unchanged from the preceding week.

Also, USDJPY again managed to close the week back above its 200-day Moving Average that has now virtually flattened out and comes in at the 90.92 level. In addition, the rate's 14-day RSI continues to show a neutral reading of 50, providing little evidence to indicate a directional bias. Overall, this picture has given USDJPY a neutral outlook for the medium term.

Nevertheless, with a possible triangle chart pattern now approaching completion on the daily charts, the coming week may well see a rise in volatility and trading volume as its breakout sends USDJPY in a fresh direction.

Until that break happens, trading the 90.83-92.07 range by buying near the bottom and selling near the top seems like the best strategy to trade.

Resistance for USDJPY is indicated at 92.87, 93.63 and 94.97. Support shows up at 91.41, in the region of 90.53/83 and 88.95/25, and at the key 90.00 psychological level.

Note: Past performance is not indicative of future results.

Figure 1: Daily candlestick chart of USDJPY showing its 200-day MA in red, Bollinger Bands in green and the 14-day RSI in the indicator box in blue.