Japanese Yen: Forecast Depends on US Dollar Fundamental Data
Fundamental Outlook for Japanese Yen: Bearish
- Japanese Yen Falls as Bank of Japan Leaves Rates Unchanged, states bearish outlook for growth
- Forex Traders Accurately Forecast USDJPY Decline
- See our Forex Carry Trade Outlook Report
The Japanese Yen saw yet another wildly volatile week of trading, as similarly choppy price action in the Dow Jones Industrials Average and other major risky assets led to major currency price swings through end-of week trade. The USDJPY initially tumbled as our own forex positioning data predicted a downside break, but currency traders quickly flipped direction and our Speculative Sentiment Index currently forecasts short-term USDJPY rallies. The Bank of Japan provided the major piece of Japanese event risk on the week, but a relatively uneventful interest rate decision gave traders little reason to force major moves across JPY pairs. Instead, the bulk of Japanese Yen volatility came from similarly large moves in global stock markets. An ostensibly busy Japanese economic calendar is unlikely to force major moves for the Yen in the week ahead, and traders will continue to monitor flows in risky assets to drive moves in the USDJPY.
A string of market-moving US and European economic reports are likely to determine the Japanese Yen’s fate; strong moves in regional stock markets will likely dominate sentiment in the typically risk-sensitive Yen. Though our forex correlation study shows that the Dow Jones-USDJPY relationship has recently weakened, it remains historically high by any measure and we cannot discount global risk sentiment in forecasting USDJPY moves. That is precisely what we saw through last week’s forex trade; a tumble in European indices led to a sharp G10 Carry Trade sell-off. With that in mind, we will pay especially close attention a steady string of significant US economic data.
First on the ledger is Conference Board Consumer Confidence figures on Tuesday the 26th—almost certain to cause major moves in consumer-related US stocks. That same day, the US Federal Open Market Committee will release its minutes from its most recent interest-rate setting meeting. Currently aggressive US interest rate forecasts for the year ahead may very well depend on rhetoric in said release, and we will have to watch for any significant change in tone from US Fed officials. Otherwise, European traders will pay close attention to German IFO Business Confidence Survey; disappointments will likely force sell-offs in domestic stock indices and spark Japanese Yen rallies. – DR
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