USD/JPY Holds Steady, Fed Outlook Unchanged Going Into June

JAPANESE YEN TALKING POINTS

USD/JPY holds a narrow range even as the Trump Administration plans to impose tariffs on imported aluminum and steel from Canada, Mexico, and the European Union (EU), and the updates to the U.S. Non-Farm Payrolls (NFP) report may keep the exchange rate afloat as the economy is expected to add 190K jobs in May.

DOLLAR-YEN RATE HOLDS STEADY, FED OUTLOOK REMAINS UNCHANGED AHEAD OF U.S. NON-FARM PAYROLLS (NFP)

Indications of full-employment may push the Federal Reserve to expand the hiking-cycle as price growth is expected to run above target over the coming months, and the central bank may adopt a more hawkish tone in the second-half of the year as it largely achieves the dual mandate for monetary policy.

However, signs of subdued wage growth may dampen the appeal of the greenback as Average Hourly Earnings are projected to hold steady at an annualized 2.6%, and the updates may do little to alter the monetary policy outlook as ‘market-based measures of inflation compensation remain low.’ With that said, the Federal Open Market Committee (FOMC) may increase its efforts to anchor expectations, and Chairman Jerome Powell and Co. may continue to project a longer-run neutral rate of 2.75% to 3.00% at the next quarterly meeting in June as ‘inflation on a 12-month basis is expected to run near the Committee's symmetric 2 percent objective over the medium term.’

In response, Fed Fund Futures may continue to highlight narrowing bets for four rate-hikes in 2018, with USD/JPY still at risk of facing a larger decline as both price and the Relative Strength Index (RSI) snap the bullish formations from earlier this year.

USD/JPY DAILY CHART

• USD/JPY remains at risk for further losses as it continues to carve a series of lower highs, but need a break/close the 108.30 (61.8% retracement) to 108.40 (100% expansion) region to open up the next hurdle around 106.70 (38.2% retracement) to 107.20 (61.8% retracement).
• Next region of interest comes in around 105.40 (50% retracement) followed by the Fibonacci overlap around 104.10 (78.6% retracement) to 104.20 (61.8% retracement), which sits just beneath the 2018-low (104.63).

For more in-depth analysis, check out the Q2 Forecast for the Japanese Yen

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--- Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.