EUR/JPY Monthly Fundamental Forecast – May 2016

The EUR/JPY dipped by 4.82% to end the month at 121.94 as both currencies ended the week with better than expected gains. The Bank of Japan and the ECB both held rates and policy helping the currencies to rally. The yen (JPY) gained in a typical safe-haven response to weaker global equity markets at the start of the year. The JPY is the best-performing G-10 currency year-to-date but there is little to suggest that the JPY’s strength is fundamentally justified. A rebound in energy prices is negative for the country’s terms of trade and growth momentum remains feeble.

Japan’s government kept its assessment of the economy unchanged this month but said it was still analyzing the impact of earthquakes over the weekend that damaged homes and halted production in the southern manufacturing hub of Kumamoto. Some economists say Japan is likely to quickly shake off the impact of the earthquakes, but there is lingering speculation that Prime Minister Shinzo Abe could call off a sales tax hike scheduled for next year to focus on bolstering domestic demand.

Japan’s government might issue spending vouchers and promote national discount-sales events similar to Black Friday in the United States to boost its lackluster consumer spending and accelerate gross domestic product growth. They could decide the details as soon as next month as it finalizes the policies for its annual growth strategy, which could potentially help the BoJ in its struggle to accelerate inflation

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.

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