- 76% of pending orders are placed to purchase the Buck against the Yen
- Share of bulls diminished from 62 to 58%
- 17% of traders see USD/JPY above 124.5 by mid-May
- FXPro and Caxton FX: USD/JPY to aim for 135
- Upcoming events: US Retail Sales, Unemployment Claims, Business Inventories
Japan's machinery orders increased more than expected in December, suggesting that companies are willing to spend following the April sales tax hike that drag the nation's economy into recession. Machinery orders rose 8.3% on month in December, according to Japan's Cabinet Office, following the 1.3% rise in the previous month and beating analysts' expectations for a 2.4% climb. The gauge is widely considered as a leading indicator of capital expenditure, which is starting to ramp up again, helping the economy out of doldrums. However, the reading is notorious for its high volatility. Orders plummeted 20% in May in the wake of the April tax increase from 5% to 8%. They have since rebounded moderately over the following months, except for a 6.4% plunge in October. The Cabinet Office's survey also showed that companies expect orders to advance 1.5% in the first quarter of 2015, following the 0.4% rise in the preceding quarter. For the central bank, increasing capital expenditure means less pressure to ease monetary policy further, as business investment underpin employment and consumer spending, which are key drivers for accelerating inflation to the 2% target.
Other growth indicators including industrial output, core household spending, and the tighter labour market all point to stronger growth last quarter.
Focus on the US data
According to the expectations of the market, today's releases of the Retail Sales and Unemployment Claims are not going to be encouraging. While the former is estimated to decline by 0.4%, the latter may increase from 278 to 282K.
USD/JPY closes above 120
Simon Smith, Chief Economist at FXPro, is expecting the Yen to weaken throughout 2015. 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 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.
Yves Perreard, CEO of Perreard Partners Investment, appears to be less confident in bullishness of USD/JPY in the short term. He expects the Japanese Yen to strengthen in the coming months pulling the pair to 115 by the end of March because of "repatriation of the pension funds" and "lack of foreign investment". However, in the longer run Perreard is also bullish the US Dollar, reckoning the rate will then recover to 120 by the mid-year.
Daily chart
The upward impetus of the US Dollar turned out to be stronger than expected. USD/JPY managed to settle above the resistance at 120 represented by the weekly and monthly R1 levels, suggesting we should soon see a test of the late December highs at 121. The main nearby obstacle for the bullish outlook is the 2014 high at 122, which needs to be overcome for the rate to set course for the 2007 high at 124 in the longer term.
Hourly chart
Less Dollar-bulls
The bulls have lost some of their advantage over the bears during the last five days. Their share has diminished from 62 to 58%. Meanwhile, 76% of pending orders are placed to purchase the Buck against the Yen, suggesting the buying pressure remains strong.
The same percentage of bullish market participants is reported by OANDA, namely 58 percent. On the other hand, only 42% of all traders support Dollar-positive outlook.
Spreads (avg, pip) / Trading volume / Volatility
17% of traders see USD/JPY above 124.5 by mid-May
Compared to the previous week the bullish sentiment gained even more strength, as 66% of all FX Community votes are now bullish. However, the average forecast for the pair for the end of this week went down to 117.9. A third of all traders surveyed expects the price to close Friday above 116.4 and below 117.9.
Dasak2010 is waiting for an upward correction, noting that the pair is bearish on the four-hour chart, whereas Likerty is short the Buck, assuming USD/JPY will dip down in the direction of 114.50.