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Yen Gains Traction as Fear Permeates Capital Markets

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Yen Gains Traction as Fear Permeates Capital Markets

Volatility in the capital markets has generated demand for the yen despite a continued advance of deflation which will concern the Bank of Japan. US data continues to point to a modest slowdown, although Thursday’s GDP print showed a second consecutive reading above growth of 3%. Friday’s weaker than expected spending data in the US also assisted in eroding the value of the USDJPY currency pair.

There was a plethora of Japanese data that hit the tape on Friday which includes the first month over month decline in core CPI in the past nine months. The year over year rate, however, ticked up to 1.3% from 1.2%. The headline rate stands at 1.6% from 1.5% in November. The core CPI which excludes food and energy stands at 0.7%, up from 0.6%. Japan also reported an unexpected sharp drop in the unemployment rate to 3.7% from 4.0%. The labor force fell by 240k, the first decline since July and the number of employed fell by 40k. Industrial production rose 1.1% in December, softer than the 1.3% expected.

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The USDJPY continued to press support levels, testing the 102.3 trend line support while resistance is seen near the 10-day moving average near 103.20. Momentum on the currency pair is negative with the MACD (moving average convergence divergence) index printing at its lowest level in the past 6-month with a downward sloping trajectory forecasting lower price action. The RSI (relative strength index) which is an oscillator that measures momentum along with overbought and oversold levels is printing near 41 which is on the low end of the neutral range.

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