Japanese Yen Prices, Charts, and Analysis

• US ISM PMI highlights weak manufacturing activity
• Japan spent over $62 billion propping up the Japanese Yen.

The latest Institute for Supply Management (ISM) data released yesterday reveals that manufacturing activity in the United States continues to contract for the second consecutive month and the 18th in the last 19 months. The May reading of 48.7 missed the previous month’s print of 49.2 and the market forecast of 49.6, indicating a further slowdown in the manufacturing sector.

This contraction in manufacturing activity has contributed to a decline in US Treasury yields, as expectations for a rate cut by the Federal Reserve in November have solidified. The market is now fully pricing in a 25 basis point rate reduction at the upcoming Federal Open Market Committee (FOMC) meeting, reflecting concerns over the weakening economic conditions. The US dollar experienced a broad-based decline against major currencies yesterday and remains subdued in early European trade today.

In a separate development, the Japanese Finance Ministry has disclosed that a record Yen 9.8 trillion (USD 62.2 billion) was spent between April 26 and May 29 to prop up the Japanese Yen in the foreign exchange market. This unprecedented intervention came after the USD/JPY exchange rate touched a high of 160.21 at the end of April, prompting the Bank of Japan to intervene and sending the pair back down to 151.92 on May 3rd.

However, the recent climb in USD/JPY to near 158.00 underscores the challenges Japanese authorities face in defending the Yen’s value. The USD/JPY pair is now trading below 156.00 after yesterday’s weaker US data release, and further downside may be in store.

This week, market participants eagerly await the release of the monthly US Jobs Report on Friday, which could prove to be a significant market mover. A weaker-than-expected jobs market would reinforce the narrative of a slowing US economy and provide the Federal Reserve with additional flexibility to loosen monetary policy.

If the jobs data disappoints, technical support levels for the USD/JPY pair around 151.92 could come into play, as a softer employment situation may increase the likelihood of a rate cut by the Fed.

For all market-moving global economic data releases and events, see the DailyFX Economic Calendar

USD/JPY Daily Price Chart

Retail trader data show 30.08% of traders are net-long with the ratio of traders short to long at 2.32 to 1.The number of traders net-long is 38.88% higher than yesterday and 11.38% higher from last week, while the number of traders net-short is 6.92% lower than yesterday and 7.71% lower from last week.We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests USD/JPY prices may continue to rise.

Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current USD/JPY price trend may soon reverse lower despite the fact traders remain net-short.

What is your view on the Japanese Yen – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author via Twitter @nickcawley1.