The bearish momentum of the Japanese yen was extended after the release of Japan’s machine orders earlier today. The yen suffered below the US dollar in the week ended on December 9 as the likelihood of the Federal Reserve rate hike supported the appreciation of the dollar. After the encouraging signs for the business investment in Japan, the currency failed to trade with the flow. Most likely, this trend may continue as the Tankan manufacturing and non-manufacturing indexes are set to be released this week as well.
(USD/JPY Hourly Chart)
(USD/JPY October 3 to December 12)
As of 10:04 UTC, USD/JPY remained on the bullish track with a 0.45 percent rally, sending negative notion in the path of the Japanese yen. The pair strongly opened at 115.629 with a session high of 115.883 and a session low of 115.623.
The 115.000 level remained to be the strongest spot for the pair in the current quarter; therefore, there was no breathing room for the yen for the past sessions. USD/JPY only started the fourth quarter at 101.000 level.
At the time of writing, the pair was trading below its 20-day SMA of 115.364 and still far from its 50-day SMA of 114.654, strengthening the upward momentum.
The pair surpassed its resistance at 115.952 while the support stood at 114.873. In case the breakthrough continues, the pair will have a new resistance at 116.090 while a fall through will result in a new support at 114.755.
Japan’s Core Machinery Orders
Meanwhile, the pick-up in Japan’s core machinery orders lifted the enthusiasm for business investments and inflation. Based on the report of the Economic and Social Research Institute, the core machinery orders advanced 4.10 percent month-over-month in October, recovering from the 3.3 percent decline in the prior month.
Beating the market expectation, the non-manufacturing sector increased 4.6 percent, led by the telecommunications and information services and support from the mining and quarrying division. On a different note, the manufacturing lost 1.4 percent as the non-ferrous metals, general-purpose and production machinery and automobiles moved lower.
The machinery orders averaged 0.29 percent only from 1987 to 2016 with the exclusion of ships and electrical equipment. In terms of annual basis, the cored orders declined 5.6 percent; lower than the estimated 4.5 percent loss by the analysts.
Further, the recent machinery orders data signaled for an upbeat outlook over the inflation condition of the nation. The wholesale prices improved from a 2.7 percent decline in October to 2.2 percent only in November.
However, the increase in inflation will be depreciation in the exchange rate – a clear explanation of the yen’s bearish track. In times of depreciation, the yen buys less foreign exchange, thus, the exports become cheaper while the imports become more expensive.
The capital expenditure will likely improve in the coming year if the build-up of machinery orders continues. In this case, the Japanese policy makers could foresee a probable growth in the economy.
Since Japan remains to be the third largest economy in the world, the market players will keep their eyes on any signs of economic recovery. In line with this, Japan will also release its data on Tankan manufacturing and non-manufacturing indexes this Wednesday.
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