• USD/JPY falls as the safety trade advances on China virus.
  • Yen continues to benefit as illness has yet to be checked.
  • Factory output drops on the year but improves in December.

Dollar yen stayed the course this week until Friday when renewed concerns on the Corona virus effect on China’s economy and in turn the globe’s pushed the pair down to below 108.50.  The 1.8% decline in the last two weeks is not a market decision on the competition between the US and Japanese economies but a recognition of Japan and the yen’s long standing safety status in Asia and the world.

The longer term effect on the Chinese health crisis will likely be detrimental to Japan and the yen as the mainland economy will suffer as the shutdown of many industries and sectors will continue until the spread of the illness is halted.

Japanese statistics were downbeat onthe week as factory output in the fourth quarter fell at its fastest pace on record and retail sales dropped for a third month in December likely showing the impact of a sales tax increase in October.

The factory data was not as poor as the three month total shows brecause output rose 1.3% in December after falling 4.5% in October and 1% November.  Surveys by the Ministry of Economy and Trade and Industry (METI) predict gains of 3.5% in January and 4.1% in February.

The Bank of Japan kept rates at -0.1% on the 20th as expected and Governor Kuroda underlined his resolve to keep policy very loose, a goal that can only have been reinforced by the developments in China.

Japan statistics, January 27-31

The government’s consumer confidence index was unchanged in January at 39.1 which is its highest point since the two year decline from 44.9 in October 2017 bottomed at 35.6 this past September.  Even this recovery is below all scores back to March 2015 excepting those of the June to November recent drop.  

The Japanese unemployment rate continued at 2.2% equaling the lowest post-recession score. Retail trade rose 0.2% on the month in December but lost 2.6% on the year. Industrial productions, decreased 3% year over year in December following declines of 8.2% in November and 7.7% in October for the worst quarter since 2013.  The monthly output rose 1.3% as mentioned above.

The Tokyo consumer price index rose 0.6% over the year in January from 0.9% the month prior and the same in December.  The core rate was stable at 0.9% in December.

Japanese statistics, February 3-7

Deputy Governor of the Bank of Japan Masazumi Wakatabe speaks on Tuesday and board member Takako Masai does on Wednesday.

The Ministry of Internal Affairs and Communication issues overall household spending for the year in December on Thursday with a decline of 1.7% forecast after November’s 2% drop and the 5.1% decline in October. Until the final quarter spending had been positive averaging 3.8% monthly in the third quarter and 2.7% in the second.

The Coincident Index for December from the Cabinet Office that tracks state of the Japanese economy is released on Friday with a slight rise to 95.9 from 94.7 expected.  The index has been falling since registering 117.5 in July and the November score was the lowest since May 2013.

US statistics January 27-31

Tuesday’s durable goods orders for December were mixed with the headline up 2.4%, much stronger than 0.5% forecast on a surge of Defense Department procurement. Business spending remained moribund and non-defense capital goods orders dropped 0.9% on a flat prediction.

The Federal Reserve status quo rate decision on Wednesday was almost universally expected but a modestly optimistic Jerome Powell did the dollar no damage.  His acknowledgement of the potential economic impact of the China virus briefly stirred markets but to no lasting effect.

Thursday’s fourth quarter GDP came in at 2.1% as forecast but in the context of durable goods orders supported by government spending, which had led to some speculation for a weaker number, it was a good statistic for the dollar. Initial jobless claims four-week moving average for the January 24 week at 214,500 held at near 50 year lows indicating no change in the labor market.

Friday’s personal income for December at 0.2% missed the 0.3% prediction and November was revised 0.1% lower to 0.4% and personal spending, more important for the consumer fueled US economy, rose 0.3% as expected.  The core personal consumption price index, the Fed’s well known favorite was 1.6% on the year and will provide the central bank with no incentive to change policy.

US statistics, February 3-7

Manufacturing has been the primary victim of the trade war with China. January’s PMI number on Monday is probably too soon to give the first glimpse of the post-agreement world. A slight rise to 48.0 is expected from December’s 47.2 which was a decade low.  Any substantial deviation in the PMI has potential for dollar impact, especially if better than forecast since that is the speculative direction following the trade deal.

Wednesday’s ADP private employment for January is the precursor to the NFP report on Friday and 155,000 is forecast after December’s exceptional 202,000. This is NFP writ small and markets responds accordingly.

Non-manufacturing PMI for January, also at mid-week, charts executive sentiment in the dominant service sector.  Business here had a much smaller drag from China and the index has never approached 50, the low being 52.6 in September.  Little change is expected with 55.1 after 55.0 in December.

Payrolls on Friday is the US economy’s big gun.  Job creation is forecast to be 156,000 in January following December’s slightly (very) disappointing 145,000.  Annual wages will rise back to 3% and the unemployment will remain at its record 3.5%.

As every month the NFP numbers are the most watched and traded US statistic. The reaction is straightforward.  Higher jobs and wages and lower unemployment boost the dollar and the reverse.

Statistics conclusion

The Japanese economy is not outperforming its US competitor and the yen has not been rising for two weeks on the basis of econometrics. 

Risk is a form of fundamental analysis that is apart from contrasting economic statistics. It encompasses the stability of a nation’s political and economic systems and its likely ability to withstand great financial stress. In Asia the choice has long been Japan for the rest of the world it is largely but not exclusively the US.

USD/JPY technical outlook

As last week the decline was largely without technical considerations except for the gathering of tops and bottoms around 108.90. 

The 21 and 100 day averages reflect the turn that began in September and remain pointed higher despite the two week decline . The 200 day intersects just above the Friday low and may hae provided some support.  Its negative slope has been reinforced by the recent drop. 

The relative strength index has turned mildly negative but probably does not indicate oversold.

First technical support exists at 108.30, Friday's low and various others from last November. The next line is weak at 107.90 followed by 107.25 also weak then 106.75, 106.50, 105.80, 105.55 and 105.00. The last three are extant from the August to September lows and are unlikely to block a concerted move lower.

Above we have 109.15, 109.50 and 109.75.  Two from the recent high at 110.00 and 110.25 complete the near term picture.  Long range are 110.63 and 111.00

USD/JPY sentiment poll

The change in USD/JPY fortune is clear in the poll.  

In the one week bullish sentiment has dropped to 50% from 57%, bearish has risen by a equal amount 50% from 43%  and sideways remains at 0%. The forecast reflects the safety trade at 108.46 from 109.88.

The one week view hints that the current safety trade may have run its course. Bullish remains at 44%, bearish rises slightly to 48% from 44% and neutral slips to 8% from 12%. The forecast  falls to 108.64 from 109.34 but rises from the one week.  

The one quarter view is indecisive, 43% bullish from 45%, 40% bearish from 44% and 17% neutral from 10%. The forecast is slightly lower than last week, 109.07 to 108.77 but commensurate across the three time periods. 

The unpredictability of the China health crisis and the safety trade increases the longer the timeframe.  It is at this point impossible to predict the endpoint of the situation and its impact on the USD/JPY except to say the longer it continues the more pressure will likely be brought on the pair. 

 

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.

Analysis feed

Latest Forex Analysis

Editors’ Picks

EUR/USD looks to test 1.0800 ahead of German ZEW

Despite the latest recovery attempt from a new 34-month of 1.0823 reached in early Asia, the sentiment around the EUR/USD pair remains undermined by the German economic growth concerns and broad US dollar strength. Focus on German ZEW, coronavirus updates.

EUR/USD News

GBP/USD extends losses to sub-1.3000 area, UK unemployment rate in focus

GBP/USD stays mildly negative just below 1.30 while heading into the London open on Tuesday. UK’s Brexit negotiator shares the same view as PM Boris Johnson, increases the risks of hard departure. UK employment statistics will be the key to clarify on the BOE’s bearish bias.

GBP/USD News

Forex Today: Risk sold amid coronavirus-led rising economic costs; a busy docket ahead

Despite upbeat US-China trade headlines and a slowdown in coronavirus infection in China, the risk appetite was battered in Asia this Tuesday, in light of the warning issued by Apple Inc. that highlighted rising economic costs due to the coronavirus impact.

Read more

Gold: Positive beyond six-week-old falling trendline

Gold prices take the bids above $1585, +0.35%, during the pre-European trading on Tuesday. The yellow metal recently broke a downward sloping trend line stretched from January 08. Early-month top on the buyer’s radar.

Gold News

FXStreet launches Real-Time Trading Signals

FXStreet Signals offers access to explanatory live webinars, real-time notifications when signals are triggered and exclusive membership to the company’s Telegram group, where users get direct guidance by our analysts and get room to discuss and interact.

More info

Forex Majors

Cryptocurrencies

Signatures