USD/JPY Fundamental Forecast – August 26, 2016

The USD/JPY remained range bound this morning with little data on the calendar traders ahead of tomorrow’s big events. Not only will the markets be closely monitoring Janet Yellen’s speech but earlier in the day, Japan will release its inflation data which could cause some volatility in the yen. Although the Bank of Japan is more or less out of ammunition to help support the economy or to help inflation as employers refuse to increase wages leaving the economic cycle dead in its tracks. The IMF recently noted that Abenomics has not worked with its three arrow plan to revitalize the Asian economy.

The Nikkei 225 index has surged around 10 percent since late June, even as the yen has climbed against the dollar, with the pair testing levels under 100. Normally this would be bad news for stocks as a stronger yen is a negative for exporters as it reduces their overseas profits when converted to local currency.

Reuters wrote that the Bank of Japan’s near doubling of its purchases of Tokyo shares is causing investors to worry the central bank will dominate financial markets, which could lead to price distortions as it continues to grease the economy.

The BOJ’s buying spree will make it harder for investors to sift good companies from bad, and raises a host of other problems including misallocating capital, making equities trading more speculative and reducing incentives for companies to meet shareholder needs, analysts say.

The BOJ has sought to boost economic activity and dispel decades of deflation by flooding the system with cash through massive asset purchases. These have been mostly JGBs, but have included real-estate investment trusts, corporate bonds, commercial paper and stocks, in the form of exchange-traded funds, or ETFs.

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Upcoming Economic Events that you should be monitoring:

August 26, 2016

Government Bond Auctions

Date Time Country Auction

Aug 24 10:03 Sweden Holds bond auction

Aug 24 10:30 Germany Eur 4bn 0% Oct 2021 Bobl

Aug 24 18:00 US Holds 2yr FRN auction & 5yr note auction

Aug 25 18:00 US Holds 7yr note auction

Aug 26 10:10 Italy Holds zero coupon