- Percentage of buy orders plunged from 60 to 51%
- Long positions now constitute 57% of the market
- Fingraphs.com: USD/JPY to trade in the 1.23-1.25 region in the next few months
- FXPro and Caxton FX: USD/JPY to aim for 135
- Upcoming events: US Job Openings, 10-year Bond Auction
The Japanese government plans a record budget for the next fiscal year to prop up the world's third biggest economy, which slid into recession after Prime Minister Shinzo Abe lifted the sales tax in April 2014. Ministers and the ruling coalition parties approved the 96.34 trillion yen ($814 billion) budget proposal for the 12 months starting April 1. Abe's Cabinet is due to meet on 14 January to formally adopt the budget. Tax revenue for next fiscal year is expected to increase to 54.53 trillion yen and finance 57% of the budget, up from 52%. New bond issuance will decline to 36.86 trillion yen, Prime Minister Taro Aso said. It is the third annual budget since Abe came to power in 2012. The budget for the coming year follows an extra budget of 3.1 trillion yen for the current fiscal year, approved last week. With the budget deficit estimated at about 3% of GDP for the 2015-2016 fiscal year, Abe could fulfil the government's pledge to halve the debt ratio from 2010-2011 levels. However, the ultimate goal of balancing the budget by 2020-2021 looks too ambitious. The International Monetary Fund forecasts Japan's debt-to-GDP ratio to swell to more than 245% in 2015.
Japan's GDP is expected to rebound, growing 1.5% next fiscal year, according to estimates by the Cabinet Office, after the slowdown for two consecutive quarters and following a projected 0.5% contraction in the 12 months through March.
Risks decreased until Wednesday
Just like Monday, Tuesday is also unlikely to contribute to the volatility of USD currency pairs, as there are no important releases scheduled for today. On the other hand, Wednesday will be marked by the US retail sales growth figure, import prices and business inventories.
USD/JPY stays in the vicinity of 118
Simon Smith, Chief Economist at FXPro, is expecting the Yen to weaken next year. He does not rule out a possibility of USD/JPY surging up to 135, reasoning that the Japanese government is going to push ahead with the policy measures to prop up economic growth.
Nicholas Ebisch from Caxton FX shares a similar view, anticipating moderate appreciation of the US Dollar against the Yen over the next 12 months. He forecasts the currency pair to go up to 122 in a month, subsequently reaching a target of 125 by April. According to the analyst, by the end of 2015 the rate may well achieve the level of 135, on the condition the US macroeconomic indicators do not fall behind the expectations and the Japanese officials introduce more easing measures to promt up inflation.
Daily chart
Without the fundamentals to drive the pair, USD/JPY stayed unchanged just above 118. Nonetheless, the bias is to the upside, as the Dollar is unlikely to violate the critical supports. The nearest major demand area is represented by the 23.6% retracement of the most recent rally and by the 55-day SMA, followed by the 38.2% retracement at 115.50. However, in order to confirm its long-term bullish intentions, the buck must close above 122.
Hourly chart
More bulls in SWFX market
While the US Dollar remained inactive, more people bought the currency than sold it, resulting in a skew towards the long positions that now constitute 57% of the market. Simultaneously, the percentage of buy orders plunged from 60 to 51%.
A different tendency was observed at OANDA and SAXO Bank, where the share of long positions declined to 60 and 72%, respectively.