USD/JPY Fundamental Analysis – week of August 1, 2016 -Forecast

The USD/JPY is trading at 102.03 and looks headed to the 100 range as the Bank of Japan did very little at its meeting on Friday surprising the markets. The pair saw a of almost 4% against a weak US dollar. The yen, meanwhile, notched its fourth rise in six days as news that Tokyo had unveiled a surprisingly large 28 trillion-yen ($265 billion) stimulus package left traders wondering how aggressive the Bank of Japan would be when it meets on Friday.

Speculation has been intense for weeks, causing whipsaw moves in currencies as analysts forecast even deeper negative Japanese rates and yet more bond purchase-driven money-printing.

Societe Generale FX strategist Alvin Tan said the BOJ meeting was now a “huge event risk” for markets.

“The Fed did kind of acknowledge the better economic data but the tone was definitely on the dovish side and the market has reacted as such,” he said.

Bank of Japan policymakers said only that they would boost its exposure to riskier investments, leaving its massive 80 trillion-yen annual asset-buying program unchanged. The news came despite weeks of fervent speculation that the BoJ would pump fresh cash into the nation’s sluggish economy.

“Markets may be disappointed that the Bank of Japan did not deliver more stimulus overnight … but financials are clearly relieved that it didn’t take interest rates further negative,” said an analyst. The news sent the dollar tumbling in Asian deals to below 103 yen from 104.20 yen earlier in the day, and well off the levels above 107 yen touched last week.

The Nikkei stock index sank almost two percent at one point but bounced back to end 0.6 percent higher.

Japanese officials are under intense pressure to deliver as the fate of Prime Minister Shinzo Abe’s faltering bid to reignite the world’s number three economy, dubbed Abenomics, looks increasingly gloomy.

The gathering was its first since Britain’s shock vote last month to quit the European Union. The referendum result hammered financial markets and sparked a yen rally that is threatening corporate Japan’s bottom line — and fanning concerns about growth.

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