• USD/JPY range was just over a figure for the week 107.04-108.17.
  • Better US economic statistics contest with higher Covid cases.
  • Resistance at 108.00 and support at 106.50 are firm.

Risk perception continues to order trading but neither side is gathering much strength for its cause.

The risk-aversion trade to the US dollar takes its signals from the advancing number of virus case in several large American states and the potential for ever stricter economic constraints.  The risk-on proponents look to payrolls and other signs of a reviving US economy.   For the last two weeks the contest has been without decision.

Japanese economic data through May showed little improvement. The decline in industrial production moderated in May but at -8.4% vs -9.8%, the gain was minimal. Tankan surveys for the second quarter were worse than expected but the capital spending index was almost 50% higher.  

The Jibun Bank manufacturing PMI for June improved to 40.1, slightly better than the expectation and the services index moved to 45 but both remain in contractions. Consumer confidence in June rose to 28.4 but even with this improvement it is just above the December 2008 financial crisis low of 26.7.

American statistics were considerably more upbeat. Non-farm payrolls added 4.8 million jobs in June far more than the 3 million forecast. Combined with the revised 2.699 million in May more than a third of the April 20.787 million lost positions have been rehired.  The unemployment rate was better as well dropping to 11.1% from 13.3%, easily besting the 12.3% forecast.  

Manufacturing jumped back into expansion in June with the PMI from the Institute for Supply Management registering 52.6 from 43.1 and the new orders index soaring a record 24.6 points to 56.4.

USD/JPY outlook

Risk appreciation puts the dollar is the odd position of losing ground as the US economy improves and gaining adherents when the Covid situation worsens. 

While the sharply rising number of Covid cases in California, Texas and elsewhere have dominated media coverage of the pandemic and a number of economic restrictions have been reapplied neither state has instituted the type of draconian closures that caused so much economic damage in March and April.  

Hospitalization rates from the virus have risen but the infected cohort is two decades younger than the population in the spring and fatalities have remained low.   The percentage of intensive care units occupied has returned to the normal 80%-90% and Covid cases are a minority of beds.

Uncertainty over the course of the pandemic and the economic response is the main reason for the modest revival of risk-aversion.  The three states are the center of the current outbreak, California, Texas and Florida are the three most populous in the US and were they forced to move to strict business shutdowns it would effectively stop the economic recovery.

Until there is a resolution of the fundamental risk picture the technical qualities of the USD/JPY will continue to circumscribe trading. That said there is a bias higher in the USD/JPY because the Covid case load is the determinant and it is rising.

Japan statistics June 29-July 3


The unemployment rate in May rose to 2.9% from 2.6% slightly more than the 2.8% forecast.  

Industrial production continued its decline falling for the fifth month in a row at -8.4% in May, more than the -5.6% prediction, but better than April’s 9.8% decrease. For the year production was down 25.9%, its eighth negative in a row and 10th of the last 12. Production had been predicted to fall 11.3% on the year after declining 14% in April.


Construction orders dropped 6.1% in May following the 14.2% decrease in April.

Housing starts tumbled 12.3% in May from the previous year, less than the -15.9% forecast and April’s 12.9% drop.

The Tankan surveys for the second quarter were -27 for the outlook for large manufacturing firms on a -24 prediction and -11 in the first quarter and -14 on a -15 forecast and a -1 first quarter score for large service sector firms. Both were the worst reading since the financial crisis.

The Tankan large manufacturing index was -34 in the second quarter under the -31 estimate and the first quarter’s -8. The non-manufacturing index was -17, -18 and 8 respectively.

The Tankan All Industry Capital Expenditures rose 3.2% in Q2 better than the 2.1% estimate and the 1.8% in Q1.


The Jibun Bank Manufacturing PMI rose to 40.1 in June beating its 37.8 forecast and May reading.

Consumer confidence edged up to 28.4 in June from 24 in May instead of falling to 20.9 as predicted.


The Jibun Bank Services PMI rose to 45 in June from 26.5 in May.


US statistics June 29-July 2


The Dallas Fed Business Index for regional manufacturing climbed sharply to -6.1 in June from -49.2 in May far outstripping the -59 consensus.


The Conference Board consumer confidence index for June rose to 98.1 from     easily topping the 90 forecast.

Fed Chairman Powell and Treasury Secretary Mnuchin testified before the House Financial Services Committee as required by the CARES Act relief bill.  Mr. Powell was more optimistic than at the FOMC press conference earlier in the month but stressing the extraordinary uncertainty of the economic outlook with the virus only partially checked.


The Institute for Supply Management manufacturing PMI returned to expansion at 52.6 in June, unexpectedly beating the 49.5 prediction and up from 43.1 in May. New orders jumped to 56.4 in June from 31.8 in May in the largest one month gain in the 78 years of the index. Economists had forecast 36.1. The employment index rose to 42.1 from 32.1 missing the 43 projection.

Construction spending fell 2.1% in May after April’s revised 3.5% decline.


Non-farm payrolls added 4.8 million jobs far more than the 3 million forecast and the May total was revised 190,000 to 2.699 million. The unemployment rate fell to 11.1% from 13.3% in May, 12.3% had been predicted.  Average hourly earnings dropped 1.2% on the month as lower-paid workers were rehired and rose 5% on the year.  The labor force participation rate climbed to 61.5% from 60.8% in May.  The underemployment rate dropped to 18% from 21.2%.

Initial jobless claims fell to 1.427 million in the June 26 week, higher than its forecast for the third week in a row from 1.482 million. The four-week moving average decreased to 1.503 million from 1.621 million.


Japan and US statistics summary June 29-July 3

The recent US data, particularly the June NFP report and manufacturing PMI gave the US the edge in economic recovery but that advantage was more than tempered by the flaring coronavirus in several large states.  

If the pandemic forces governors in Texas, Florida and California to again shutter large parts of their economies it will quickly negate any recovery that has occurred.

Pandemic accounting still trumps economic statistics in market impact. Though the rising Covid cases have not prompted a general return to the dollar-centric safety trade, that is a distinct possibility should the infection escape its current bounds.

Japan statistics July 6-July 10


US statistics July 6-July 10


USD/JPY technical outlook

The relative strength index remains at neutral given the minor 30 point gain in trading. The 21-day and 100-day averages were crossed on the rise on Tuesday and on the fall on Wednesday. The 21-day provides is at the Friday close at 107.49.  The 100-day at 107.90 provides backstop to the 108.00 resistance line. The 200-day is at 108.0.

Resistance: 108.00; 108.50; 109.25; 109.60; 110.00; 110.40

Support: 106.85; 106.50; 106.00; 105.40; 104.70

USD/JPY sentiment poll

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