Fundamental Forecast for Japanese Yen: Bullish
- US Dollar at key risk of break versus JPY ahead of critical event risk
- Two key price levels to watch on the USDJPY exchange rate
- Interested in trading the Japanese Yen? Try currency trading baskets
The Japanese Yen finished higher as a noteworthy pullback in the Nikkei 225 pushed the USD/JPY exchange rate to weekly lows. Yet the true fireworks may come on upcoming Bank of Japan and US Federal Reserve rate decisions, while US labor market data may likewise spark big moves in the USDJPY.
Both the BoJ and the US Federal Open Market Committee (FOMC) are likely to keep monetary policy unchanged through their upcoming decisions. Yet all eyes will turn towards the Bank of Japan’s statements to gauge the likelihood of future policy changes, and investors will similarly scrutinize FOMC rhetoric for any clues on the timing of future interest rate increases.
Japan’s central bank governor Haruhiko Kuroda made it clear that officials do not anticipate the need for further monetary policy easing at the BoJ’s last policy-setting meeting. And indeed it seems unlikely that recent economic data will have shifted the bank’s bias. As such we’ll watch for any reference towards changing economic forecasts—particularly in light of the consumption tax hike put into effect at the beginning of the month.
On the US side of the equation, the Federal Reserve is almost certain to keep its current level of “Taper” intact; it will announce a fresh $10bn reduction in its Quantitative Easing purchases through its April 30 meeting. Investors will focus on whether the policy-setting board clarifies the future of interest rate hikes. Fairly hawkish FOMC projections initially sent US yields sharply higher on its March 19 decision, but interest rates gave back much of their gains on fairly moderate Fed commentary. It will be important to monitor how the Dollar and global equity markets respond to FOMC commentary—particularly ahead of highly-anticipated US Nonfarm Payrolls data.
Volatility prices on USD/JPY options have bounced noticeably ahead of the BoJ, FOMC, and NFPs and for good reason—any one of these has the potential to force big Dollar and Yen moves. Our Senior Strategist highlights two critical levels to watch for the USDJPY, and certainly the pickup in economic event risk increases the likelihood of sharp short-term currency moves. - DR