Fundamental Japanese Yen Forecast: Bearish

  • Both the US and Japanese central banks will set policy this week
  • Neither is expected to move the dials, so comment will be key
  • A relatively hawkish Fed could see the Yen head lower

What does the retail foreign exchange community make of the Japanese Yen’s prospects? Take a look at the DailyFX Sentiment Page

The coming week will see monetary policy meetings at both the US Federal Reserve and the Bank of Japan but there are no prizes for guessing which will be more important for Japanese Yen trade. Neither central bank is thought likely to move the policy dials at all, which will leave their commentary at a premium for markets. And here, of course, the Fed will top the bill.

After all the BoJ remains committed to its ultra-loose monetary policy settings until consumer price inflation sustainably tops 2%. It’s currently chugging along at 0.4% so that time can hardly be at hand. Therefore Governor Haruhiko Kuroda can only be expected to underline his ancient status quo once again when he meets the press on Thursday. If he does (when he does?) the markets are unlikely to move much.

Meanwhile, US consumer price inflation is running at seven-month highs and bets on another interest rate increase before New Year’s Eve have consequently increased. Investors will want to know if damage from Hurricanes Irma and Harvey has given Fed hawks any pause but, assuming they get past Wednesday’s policy decision with the idea that hikes are still on the cards, then USD/JPY should at least find support.

Beyond the central bank meetings, the week’s Japanese economic data can probably be discounted as much of a Yen driver. There isn’t much anyway. Sadly the baleful influence of North Korea on global risk appetite can never be so discounted and, should its missiles fly again, then the Yen will probably stand to gain. However, if risk appetite is bolstered by silence from Pyongyang- and a relatively optimistic Fed- then the Japanese currency is likely to lose ground.

Japanese Yen May Lose Out If Fed Keeps A Rate Hike In Focus

--- Written by David Cottle, DailyFX Research

Contact and follow David on Twitter:@DavidCottleFX