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US Dollar ($) / Japanese Yen (¥) (USDJPY) Preview

Economist Shayne Heffernan of www.livetradingnews.com takes a look at the USDJPY week ahead.

USD/JPY hit 77.93 on Thursday, the pair’s lowest since October 1; the pair subsequently consolidated at 78.43 by close of trade on Friday, 0.26% lower for the week.

The pair is likely to find support at 77.93, Thursday’s low and resistance at 78.75, the high of October 8.

A senior Chinese diplomat made a secret visit to Tokyo this week to hold talks aimed at defusing tensions between Japan and China over a group of disputed islands, Japan’s top government spokesman said Friday.

The spokesman, Osamu Fujimura, said Luo Zhaohui, who leads the Chinese Foreign Ministry’s Asian Affairs Department, met Thursday with Shinsuke Sugiyama, director general of the Asian and Oceanic Affairs Bureau at Japan’s Foreign Ministry. Fujimura was confirming a statement issued Thursday night by the Japanese ministry that revealed the meeting.

The talks appeared to signal a willingness by the nations to at least begin discussing their often highly emotional disagreement over control of the island group, known as the Senkaku in Japan and Diaoyu in China. According to the ministry’s statement, the diplomats “exchanged opinions” on the dispute and held preparatory talks for a higher-level meeting between the two nations to take place at an unspecified date.

The yen remained under pressure after Thursday’s minutes of the Bank of Japan’s September meeting indicated that some policymakers were leaning towards more aggressive easing measures, boosting expectations that the central bank may ease policy again later this month.

On Sept 21, when Prime Minister Yoshihiko Noda convincingly defeated party rivals for the post of president of the left-leaning Democratic Party of Japan (DPJ), he looked glum.

“I am not smiling,” he said after being re-elected. It was not difficult to see why. By all accounts, Noda will spend the next few months trying to maintain a precarious balance between preserving party unity and addressing major policy issues demanding attention.

The latter include accelerating the pace of rebuilding after last year’s earthquake, reviewing the nation’s nuclear energy policy and dealing with diplomatic spats involving China and South Korea.

And, as is becoming increasingly clear, he must do all this as an ambitious former prime minister snaps at his heels. Less than a week after Noda won re-election as DPJ head, the Liberal Democratic Party (LDP) held its party poll, choosing as its leader Shinzo Abe, a former premier known for his hawkish views.

Apart from potentially complicating Japan’s relations with China at a particularly sensitive time in diplomatic relations, Abe is likely to insist that the Prime Minister honour a deal he made in August with Abe’s predecessor. This involved both the LDP and New Komeito – a smaller opposition party – supporting legislation to double the 5% sales tax rate by 2015 in return for an undertaking from Noda to call a general election “some time soon”.

The USD/JPY pair barely moved during the Friday session as the pair continues to be pretty much a stalemate. This pair reflects the fact that there are two central banks are involved that are currently trying to devalue their currencies. With this being said, it’s hard to think that there is going to be some sudden breakout in one direction or the other.

Because of this, we actually prefer to play a range bound strategy, selling closer to the 79 handle and buying closer to the 77.50 level. The fact that we are closer to the 70.40 handle tells us that it’s time to step on the sidelines and simply wait for one of the outer bounds of this consolidation to get hit in order for us to play the bounce.

The BoJ increased the size of its asset purchase program by JPY10 trillion last month.

Meanwhile, official data showed that machinery orders fell for the first time in three months in August, underlining concerns over Japan’s fragile economic recovery.

On Friday, Japan’s Prime Minister Yoshihiko Noda told International Monetary Fund Managing Director Christine Lagarde that the strong yen is threatening to damage the nation’s economic recovery at the annual IMF meeting in Tokyo.

In the week ahead, markets will continue to continue to focus on whether Spain will formally request a bailout and if international creditors will extend loans to Greece as the country struggles to meet deficit reduction targets.

Monday, October 15

The U.S. is to produce official data on retail sales, the primary indicator of consumer spending, which accounts for the majority of economic activity. In addition, the U.S. is to release data on manufacturing activity in New York state, as well as official data on business inventories.

Tuesday, October 16

The U.S. is to release government data on consumer price inflation, which accounts for the majority of overall inflation, as well as official data on industrial production. The U.S. is also to produce official data on treasury long-term purchases and the capacity utilization rate.

Wednesday, October 17

The U.S. is to publish government data on building permits, an excellent gauge of future construction activity, as well as data on housing starts, a leading indicator of economic health. The U.S. is also to produce official data on crude oil stockpiles.

Thursday, October 18

The U.S. is to publish weekly government data on initial jobless claims, as well as a report on manufacturing activity in Philadelphia, a leading indicator of economic strength.

Friday, October 19

The U.S. is to round up the week with industry data on existing home sales, a leading indicator of economic health.