USD/JPY swinging either side of 109.00 as FX markets await fresh catalysts
- USD/JPY has slipped back to the 109.00 level on Tuesday but is now consolidating as markets await fresh catalysts.
- That will come in spades this week with Fed and BoJ rate decisions on Wednesday and Friday respectively.
USD/JPY has dropped back from Asia Pacific levels in the 109.20s (not far from multi-month highs) to swinging either side of the 109.00 level. But broadly speaking, the pair continues to trade within recent ranges, which is fairly unsurprising as market participants keep their powder dry ahead of Wednesday’s FOMC monetary policy decision and Friday’s BoJ rate decision.
Driving the day
Soft US data released prior to the open of US trade appeared to contribute to some downside in USD/JPY, pushing the pair to hit session lows in the 108.70s, though the move was short-lived. In terms of the US data; US Retail Sales dropped more than expected in February, but that mostly represents the fading boost of January’s stimulus cheques. Retail sales will undoubtedly jump again in March after the government hands out another $1400 to each US citizen. Meanwhile, Industrial Production in the month of February also disappointed. Analysts note that poor weather conditions last month contributed to the drop, but note also that global supply shortages also played a factor and this could be a longer-lasting drag. Note that Japanese Industrial Production data was also released overnight and was pretty decent, showing a jump in output of 4.3% during the month of January.
Aside from data, there has been very little news of note out of the US or Japan, thus focus remains on the aforementioned incoming risk events. Note that markets will also be watching Japanese trade data released at 23:50GMT on Tuesday, US February Housing data on Wednesday (prior to the Fed), as well as US Weekly Jobless Claims and the March Philly Fed Manufacturing survey on Thursday – data will remain in the discussion, even if it plays second fiddle to central bank action.
One factor to watch this week is how US government bond yields respond to Wednesday’s Fed event; the US/Japanese rate differential has been a key driver of USD/JPY in recent months, with the rising in US bond yields a key factor behind USD/JPY’s recent strength. Thus, should US government bond yields resume their upwards trajectory this week, this is likely to be USD/JPY bullish and vice versa.