- The share of buy orders soared from 57 to 70%
- 65% of open positions are long
- 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 Durable Goods Orders, Consumer Confidence, New Home Sales
Japan's trade balance deficit reached a record high of $109 billion over 2014, marking the fourth consecutive annual shortfall, amid increased import prices and huge post-Fukushima energy costs. Exports rose 4.8% to $620 billion, whereas imports gained 5.7% to $763.7 billion in 2014. Fuel costs had a serious impact on Japan as it struggles to close the gap after the 2011 atomic crisis, forcing Japan to abandon its nuclear source, which accounted for more than a quarter of total power supply. The Yen weakened over the 2014 to 117 versus the US Dollar, making exports cheaper and import costs higher, especially on energy. The trade deficit, however, halved in December to 660.7 billion yen, compared to the previous year, the main reason for which were slumping oil prices. Exports increased better than expected, by 12.9% in the last month, also contributing to the trade deficit compression. The deficit is expected to narrow even further due to falling prices on crude oil, that lost around half of its value to less than $50 per barrel, are not fully reflected in the cost of imported petroleum.
Meanwhile, minutes showed that the quantitative and qualitative monetary easing has been having its intended effects, therefore the BoJ will continue with the QQE in order to achieve price stability target of 2%. The CPI will remain lower due to slumping prices of crude, whereas the limit of outstanding loans will be increased by the bank from 7 trillion to 10 trillion yen, as well as doubling the amount of funds offered to each institution under a separate growth programme.
US economy to recover
According to the consensus regarding today's releases, the United States economy should rebound following a string of negative releases. Some of the key indicators, such as Durable Goods Orders, consumer Confidence and New Home Sales are expected to improve compared to their previous values.
USD/JPY challenges 55-day SMA
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 prompt up inflation.
Daily chart
USD/JPY managed to offset all the Friday's losses and gained a foothold above 118 once again. However, the resistance at 119 remains intact, and the currency pair must break it to confirm bullish intentions. The first target will then be the late December highs at 121, followed by the 2014 maximum just below 122. In the meantime, the support at 118 seems no longer reliable, the demand at 116 is a better candidate to be the medium-term line in the sand.
Hourly chart
SWFX traders are mostly bullish
There are even more people confident in appreciation of the US Dollar relative to the Yen than yesterday, as 65% of open positions are now long. The share of buy orders increased by a considerably wider margin, from 57 to 70%.
On the other hand, long positions at OANDA and SAXO Bank are becoming less popular. Although the changes are minimal, for the former the percentage of bulls fell from 60 to 59% and for the latter from 50 to 49%.