Fundamental Forecast for Japanese Yen: Neutral
- Disappointing US economic data enough to keep pressure on USDJPY
- One-sided positioning warns of a potential JPY breakout
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A highly-anticipated US Nonfarm Payrolls data print could ultimately provide the spark necessary for a larger Dollar break versus the Japanese Yen, and current signs favor the downside on the USDJPY and broader JPY pairs. Indeed we recently highlighted heavily one-sided retail FX trader positioning as a key reason the Dollar could break lower against key counterparts. A sharp drop in US interest rates and Treasury Yields may likewise keep downside pressure on the yield-sensitive USDJPY absent a material reversal of trends. Thus all eyes turn to the highly-market-moving NFPs print as it could potentially set the stage for a larger USD correction.
There is comparatively little foreseeable economic event risk out of Japan and as such eyes will remain on the US economy and broader market sentiment. The correlation between the USDJPY and the Nikkei 225 index has weakened notably as of late; recent gains in Japanese equities have not been enough to lift the exchange rate. Yet a further rise in equity market volatility would likely restore said link, and we’ll keep a close eye on global equity markets as the US S&P 500 registers its second-consecutive monthly decline. Continued losses could be enough to send the USDJPY through key support.