USD/JPY Strategic Analysis
October 24, 2012 in Forex Analysis
USDJPY (79.86) -Against the Japanese yen the dollar changed hands for ¥79.83, little changed from ¥79.85 Tuesday. The U.S. dollar declined in Asian trading hours Wednesday after a preliminary gauge of Chinese manufacturing rose, helping underpin optimism that the world’s second-largest economy is improving.
Demand for riskier assets appeared to grow Wednesday after the preliminary version of HSBC’s China manufacturing Purchasing Managers’ Index (PMI) for October rose to 49.1 on a 100-point scale, up from September’s final reading of 47.9 Anything above 50 represents expansion for manufacturing activity, while anything under 50 signals contraction. The PMI data followed last week’s Chinese gross domestic product data that showed a decline in line with economist forecasts, as well as stronger-than-expected retail sales data and industrial production data.
The yen has retreated over the past few weeks on growing market expectations that the Bank of Japan will unveil further monetary stimulus at its policy meeting next week in a bid to help the export-focused economy through a global slowdown. Economy minister Maehara, who attended the last BoJ meeting earlier this month, has indicated that he may attend the next meeting as well, adding to the perception that BoJ will expand the asset purchase program. Speculation has included an increase in the BoJ asset purchase program by a notable ¥20trn and the loan program designed to encourage overseas investment beyond March.
USD/JPY remains in a tight range with 80.00 just overhead still proving challenging. Market players have been busy pricing in more BOJ easing, which coupled with rising US Treasury yields, keep the yen under pressure. The yen has lost its attractive as safe haven, although dollar can make little progress in such a negative sentiment environment against its Japanese counterpart. Technically, the pair still holds a bullish stance according to technical readings.