EUR/JPY Monthly Fundamental Forecast – April 2016

The EUR/JPY saw a gain of 3.38% after the euro soared to its highest level in 2016 as Eurozone data beat expectations including inflation data. The pair is trading at 128.07. With sentiment so poor in Japan it is hard to envisage a sudden upturn in risk appetite among Japanese investors. Portfolio outflows have accelerated notably into foreign fixed income markets, notably since USD/JPY began its sudden drop. In the eight weeks since the start of February, Japanese investors have bought close to JPY 9trn worth of foreign bonds.

However, it is very likely that in the circumstances in which those outflows took place. Japanese investors hedged these outflows aggressively. These outflows are also most likely not a function of increased risk appetite but more a function of the falling value of foreign investments in yen terms that prompted a rebalancing as we approach the fiscal year-end in Japan.

While the flow dynamics suggest upcoming softness in the yen, bulls would likely counter by pointing out that repatriation flows associated with benefits paid to retirees are a structural force that will prove conducive to strength in the currency over the medium term.

The decision by the Bank of Japan to venture into negative territory has been criticized once in a while. This is because the aim of lowering the stronger Japanese yen was not achieved. After the policy, yen weakened a little bit but then found its ground and started appreciating.

FxEmpire provides in-depth analysis for each currency and commodity we review. Fundamental analysis is provided in three components. We provide a detailed monthly analysis and forecast at the beginning of each month. Then we provide more recent analysis and information in our  weekly reports and we provide daily updates and outlooks.

Upcoming Economic Events that you should be monitoring: