USD/JPY rangebound around 103.50 as focus turns to key Japanese data releases

• USD/JPY has for the most part gone sideways on Thursday and currently trades flat on the day around 103.50.
• Key January flash Markit PMI data and December CPI numbers will be released during Friday’s Asia Pac session.

USD/JPY has for the most part gone sideways on Thursday and currently trades flat on the day almost bang on the 103.50 mark. The pair is consolidating after breaking to the downside of a short-term pennant structure it had formed since the start of the week commencing on 11 January.

Driving the day

Thursday’s BoJ monetary policy decision had virtually no impact on JPY; as expected, the bank left traditional policy settings unchanged but did extend the deadline for its loan schemes another year. With regards to the updated Outlook Report, the bank cuts its real GDP growth forecast to -5.6% from -5.5% for 2020, but raised its forecasts for 2021 and 2022. Meanwhile, December trade numbers underwhelmed versus consensus expectations, but exports did post their first positive annual growth rate since November 2018.

In terms of the USD side of the equations; the buck has been on the back foot for the most part with the Dollar Index (DXY) down 0.4% on the day, though these losses are primarily being seen versus EUR and GBP and, as noted above USD/JPY is flat. No particular theme can be pointed at as driving the US dollar lower, though market commentators continue to point vaguely at the themes of “stimulus hopes” and “vaccine optimism”. In fairness, both of these themes are still very relevant and both will likely drive further upside in risk assets for the foreseeable future (as well as perhaps downside in the US dollar), provided this is accompanied by an accommodative Fed.

Coming up

Some key data releases are on the horizon for JPY traders; December CPI will be released at 23:30GMT, with the Core figure expected to show prices falling at an annualised rate of 1.1% on the month. One hour later, January flash Markit PMI number will be released. The latter is likely to have a greater influence on the price action, though, as ever, macro themes and USD sentiment will take precedent over domestic Japanese economic news in terms of its ability to affect the price action.

After the start of Friday’s US session, focus will then shift to US data, with eyes on the released of January flash Markit PMI numbers at 14:45GMT; US manufacturing PMI is expected to fall slightly to 56.5 and Services PMI is expected to drop a little more to 53.6, both still solid numbers in fairness. Existing Home Sales data for December will be out 15 minutes later and is expected to show a mild moderation in the rolling 12-month number of home sales, though that does not imply that the US housing market is any less on fire than it has been over recent months.

Aside from the data, US politics (the actions of the Biden administration in its early days and the evolving outlook for fiscal stimulus as Senate politics unfold) and pandemic news will remain at the forefront of investor focus and USD/JPY will continue to have to balance any further bouts of USD weakness against any further JPY negative bouts of risk appetite.