What's Driving USD/JPY Higher?

On a day that would normally see Yen gains, following a better than expected Chinese manufacturing report, traders are a bit shocked to see the currency trading back above the 89 resistance figure. Prompting the rise is further rhetoric from government officials for a weaker yen, which is being compounded by signs of lingering weakness in one of the regional economies.

Yen at 100 – Not a Problem

According to the country’s deputy economy minister, the Japanese government wouldn’t be averse to having an exchange rate of 100 for the USDJPY. Not surprising, the comments are in line with newly elected PM Shinzo Abe’s plan of further yen debasement. However, Minister Yasutoshi Nishimura noted that the government is unlikely to allow a perpetual free fall when it comes to the “correction of the strong yen”.

Subsequently, the comments come amid rising criticism from global trading partners over the 8% depreciation of the yen over the last two months. This will no doubt place the yen back into the spotlight when policymakers from the G7 nations meet in Februrary.

Chinese Resurgence

Manufacturing activity rose slightly higher to fastest rate in two years, according to the most recent HSBC/Markit Flash PMI report. Readings increased to 51.9 in January, gaining on December’s 51.5. The figure bodes well for the world’s second largest economy, alluding to the potential for another 7.9% pace of growth in 2013 on sustained activity.

Sustaining the higher figure was a better than expected new orders component reading, which jumped to 50.1 from December’s contractionary 49.2. Subsequently, both employment and output gauges additionally rose, with the output index advancing to an almost 2-year high.

South Korean Slowdown

Countering the higher pace of manufacturing gains in China, and lending to notions of economic weakness in the region was the South Korean GDP report for the fourth quarter. According to Bank of Korea data, overall growth gained by a paltry 1.5%. The figure dips below estimates of a 1.8% rise, and below earlier central bank forecasts of 2%. Attributed to the rather lackluster figure seems to be waning economic expansion on the heels of an appreciated currency. Nonetheless, policymakers remain steadfast in their belief that the economy will return to capacity, with forecasts pointing to a 3% pace of growth this year.

Technical Outlook

Now with the USDJPY rate back up above the 89 figure, traders are eyeing the 90 resistance barrier in the near term. The figure remains pivotal to any further upside in the pair, with a break higher alluding to a potential test of subsequent resistance via the 90.50.