USD/JPY preserved ground above the 100.00 level on Friday, despite the weak industrial data, released out of the United States, but however, demand for safe haven yen remained under pressure due to expectations that the Federal Reserve will maintain the current monthly pace of its stimulus program probably until early next year.
Having reached two-month highs at 100.43 at 9:41 GMT on Friday, USD/JPY cross ended the week at 100.19, gaining 0.19% for the day and 1.04% for the week, which was pairs third consecutive weekly advance. Support was likely to be found at November 14th low, 99.12, while resistance was to be met at September 11th high, 100.60.
US dollar pared earlier gains on Friday after it became clear that the Empire State manufacturing index dropped to a reading of -2.21 in November, marking its first negative value since May. In October the index came in at 1.52. Values below zero are usually considered as an indication that activity in the sector has contracted. Preliminary estimates pointed an increase to 5.00.
In addition, industrial output in the United States was reported to have unexpectedly decreased 0.1% in October compared to September, marking its first monthly drop since July, as sectors of mining and utility services contracted. Expectations pointed a 0.2% expansion in production during October.
These data points came as another evidence to add to the case that continuing monetary stimulus is still needed.
Federal Reserve Chair-nominee Janet Yellen told the Senate Banking Committee on Thursday that as US economy was beginning to show progress, rates of inflation and unemployment still have more room to approach central bank’s targets. Market players considered such comments as rather dovish, as it seemed Fed policymakers wanted further solid proof of economic improvement before making a move towards reduction of monthly asset purchases. It is expected by economists, that the central bank will taper its stimulus program as early as March next year.
In the mean time, Japanese yen remained broadly weaker against major peers, after on Thursday Japanese Finance Minister Taro Aso said that it was crucial to retain currency market intervention as a policy option, which should be used in case of increased market volatility.
Also on Thursday, an official report said that Japanese preliminary Gross Domestic Product, the widest indicator for economic activity, rose 0.5% during the third quarter of the year, compared to the preceding quarter, after a 0.9% gain in Q2, while experts had anticipated that the GDP will expand 0.4% in Q3. The annualized GDP figure, however, grew 1.9% in Q3, slowing down the pace in comparison with the 3.8% gain recorded in the second quarter and the 4.3% gain recorded during the first three months of the year.
During the upcoming week investorsfocus will be set upon the minutes of Federal Reserve Banks most recent meeting on policy, as well as upon Bank of Japans interest rate decision and statement on policy.
USD/JPY cross may be influenced also by a number of reports, scheduled for release during the week, as follows:
On Tuesday (November 19th) the United States is to release data regarding the employment cost index for Q3.
On Wednesday (November 20th) Japan will release a report on its trade balance for October, followed by a separate report on the all industries activity index for September.
Later in the day the United States is scheduled to publish a string of crucial economic data, including retail sales, consumer price index and existing home sales in October.
In addition, the Federal Reserve Bank will publish the keenly anticipated minutes of its policy meeting held on October 30th-31st.
On Thursday (November 21st) Bank of Japan will announce its decision on the benchmark interest rate, accompanied by a statement on monetary policy. A press conference with banks Governor Haruhiko Kuroda is to be conducted after the rate announcement.
The United States, on the other hand, will release its weekly report on initial jobless claims, accompanied by another report on producer prices for October. Markit Economics will announce the preliminary value of the index gauging manufacturing activity in the country during November, while the Federal Reserve Bank will publish the results of a survey among manufacturers in the region of Philadelphia.
Monday and Friday have been skipped, as no relevant events concerning the United States and Japan are scheduled on these days.