USDJPY lost some ground last week in spite of the emergency Bank of Japan meeting held on August 29^th to discuss measures to curb the recent rise of the Japanese Yen. After the meeting, the central bank revealed its new six month loan program that featured increased liquidity and low interest rates. In one notable measure, the Bank of Japan raised the amount of funding that is available to banks from ¥20 trillion to ¥30 trillion. In spite of this additional easing action by the Bank of Japan, USDJPY started off last week by falling sharply.

The rate initially came off of its weekly high point of 85.88 after the Bank of Japan made the anticipated announcement that it was going to leave its benchmark Overnight Call Rate at the 0.10% level. Other economic releases out from Japan last Monday included the Japanese Retail Sales number that showed a favorable increase of +3.9% for the year compared with the lower +3.6% number expected by the market. Furthermore, Japanese Preliminary Industrial Production gained +0.3% for the month compared with the decline of -0.3% that the market had expected. Also on Monday, Japanese Average Cash Earnings came out showing a gain of +1.3% compared with the +0.9% number expected by the market.

Tuesday saw USDJPY continue to fall, with the rate eventually trading down as far as 83.80 after Japanese Housing Starts came out showing an impressive gain of 4.3% for the year that was a significant improvement over the 2.5% consensus the market was looking for. Also on Tuesday, Naoto Kan, the Japanese Finance Minister, announced that an additional allocation of ¥920 billion would be made in order to help weaken the Japanese Yen and to stimulate domestic demand in Japan. Nevertheless, the market did not seem very impressed with this latest measure because USDJPY then fell to its weekly low at 83.65. Also on Wednesday, the Japanese Monetary Base came out showing growth of only 5.4% for the year compared with the consensus expectation for a 6.3% gain.

USDJPY largely consolidated during Thursday's trading, with the Greenback being supported by favorable U.S. Initial Jobless Claims and New Home Sales numbers. The pair then managed to stage a sharp rally on Friday up to the 85.21 level in response to positive U.S. employment numbers. Specifically, U.S. Non Farm Payrolls had only fallen by -54K, which was a considerable improvement over the larger -101K loss that had been anticipated. In addition, the former NFP number was revised substantially upward from the -131K level to -54K. Furthermore, the U.S. Unemployment Rate held constant at the 9.6% level, as the market had been expecting. Nevertheless, this good news could not sustain the U.S. Dollar for long and USDJPY then sold off just as sharply as it had risen to close for the week at the 84.39 level, and posting an overall drop of 1.1% for 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:

The upcoming week of data releases for the Japanese economic is more or less as active as the preceding week. It will feature the key Japanese Monetary Policy Statement, as well as the associated BOJ Press Conference that are each tentatively scheduled for release on Tuesday.

Monday is quiet with nothing notable due out, so Tuesday starts the busy week with the tentatively scheduled release of the highlighted BOJ Monetary Policy Statement, along with the Overnight Call Rate (0.10%), and the associated BOJ Press Conference. Also out on Tuesday are Japanese Leading Indicators (98.3%).

Wednesday is especially busy and offers Core Machinery Orders (2.0% m/m), Bank Lending (last -1.8% y/y), the Japanese Current Account (1.38T), M2 Money Stock (2.6% y/y), the BOJ Monthly Report, and the Economy Watchers Sentiment survey (50.3).

Thursday has scheduled the release of BSI Manufacturing Index (6.3), Household Confidence (43.8) and Preliminary Machine Tool Orders (last 144.9% y/y).

Friday ends the busy week with the BOJ Monetary Policy Meeting Minutes, CGPI (-0.2% y/y), Final Japanese GDP (0.4% q/q) and the Final GDP Price Index (-1.8% y/y).

United States:

The economic data calendar for the United States calms down significantly during the coming week, but it will still provide some significant information for the forex market to mull over. With respect to data, the coming week will feature the important U.S. Trade Balance number due for release on Thursday.

Monday begins the week on a quiet note as the United States observes its Labor Day Bank Holiday, and Tuesday is similarly quiet.

As a result, Wednesday begins the week with the scheduled release of the important Federal Reserve Beige Book, in addition to Consumer Credit (-4.5B m/m).

Thursday should provide the weekly highlight with the release of the U.S. Trade Balance (-47.4B), in addition to the significant Initial Jobless Claims number (470K).

Friday finishes the relatively quiet week, with only the release of Wholesale Inventories (0.4% m/m) scheduled.

The Technical Picture for USDJPY

On the technical front, USDJPY traded to its weekly high at the 85.88 level last Monday before the rate sold off sharply to the 83.65 level that was just short of yet another new fifteen year low. The rate then closed the week a bit higher at the 84.39 level, down 1.1% from the previous weekly close.

If another corrective rally ensues, USDJPY should meet resistance at a falling trend line that can now be drawn at 86.36. Furthermore, the recent breakout of a presumed triangle pattern has now met its measured move objective of 83.81 in the recent decline to the 83.57 level. Also, now that the 84.80 support has given way in the process, the prevailing down trend could well send the rate much lower, with the all time low of 79.75 being the next major support level showing on the chart for USDJPY.

The rate also continues to trade well below its 200-day Moving Average that has now started to slope gradually downwards again after having pretty much flattened out. This key indicator now comes in at the 89.95 level and provides an increasingly bearish medium term outlook for the rate.

Furthermore, the recent price action in USDJPY has remained within neutral territory, and this key indicator currently comes in the lower part of neutral territory at 39 and seems to be forming a triangular consolidation pattern. Nevertheless, this level should not impede further price action much in either direction for the coming week.

After closing at 84.39 on Friday, resistance for USDJPY shows up in the 84.58/64 and 85.21/90 regions, and above that at 86.35. Initial strong support is seen in the 84.71/88 and 83.57/65 regions, and below that at the major 79.75 support level.

Overall, this technical scenario for USDJPY argues for continuing to trade the rate on the short side - both from a medium term and short term basis - although, since the rate is currently at historically low levels, traders doing so should watch out for possible sharp upward moves. Furthermore, medium term traders holding shorts could now start looking for dips to cover on near current levels, especially if additional regular RSI/Price divergence is seen on any new lows.

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, Trend Lines in purple and the 14-day RSI in the indicator box in pale blue.