TALKING POINTS: USD/JPY, FED, BANK OF JAPAN, EQUITIES, NAFTA
- Japanese Yen slightly rose in response to mixed business sentiment data
- USD/JPY testing January 2018 resistance levels, losses may continue
- US-China trade war, EU-Brexit negotiations, and US CPI in focus next
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The Japanese Yen cautiously gained against the US Dollar as local economic data crossed the wires early into Tuesday’s Asia Pacific trading session. The Business Sentiment Index Large All Industry for the fourth quarter rose slightly to 4.3 from the 3.8 prior, while the index measuring sentiment for only large manufactures declined to 5.5 from the previous 6.5. The decline in the latter may point to evidence of the global trade tensions taking a toll on the third-largest economy as local businesses’ outlooks worsen.
USD/JPY 5-Minute Chart
Despite the slight decline in prices, the currency pair has rallied for the majority of this year and is currently testing January 2018 resistance levels near the 112.91-113.16 range. Although interest rate differentials have continued to fuel US Dollar strength, the Japanese Yen has recently enjoyed bullish momentum on the heels of declines in stock indices. The S&P 500 posted its worst performance since March last week, amid widespread risk aversion after the arrests of Huawei’s CFO for alleged violations of US sanctions on Iran and Nissan’s ex-chairman for financial misconduct. The Nikkei 225 has also similarly declined, with future losses potentially fueling upward momentum for JPY.
USD/JPY Daily Chart
Looking ahead, market sentiment and fundamental themes continue to dominate next moves for USD/JPY. The currency pair will be closely eyeing developments in the US-China trade war, specifically the impact of Huawei’s CFO arrest on the temporary trade truce. In addition, the summit of EU leaders set to take place this Thursday may also offer next cues, as UK Prime Minister Theresa May struggles to produce a Brexit deal. USD/JPY also faces the release of November’s US CPI and the 4Q Japanese Tankan large manufacturing outlook.
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--- Written by Megha Torpunuri, DailyFX Research Team