USD/JPY Fundamental Forecast – July 28, 2016

The U.S. Dollar rose against the Japanese Yen on Wednesday, recapturing more than Tuesday’s sell-off after Japan’s Fuji TV said Prime Minister Shinzo Abe was planning to announce today a stimulus package with a headline figure of around 27 trillion yen. If the report is true then it would exceed earlier reports of a possible headline figure of around 20 trillion yen, although it’s not clear how much of that will consist of direct government spending.

The USD/JPY finished at 105.568, up 0.953 or +0.91%.

The U.S. Dollar continued to gain on the Japanese Yen after Kyodo News reported Abe’s stimulus plan may be as much as 28 trillion yen or $354 billion. Jiji News is saying the plan will include 13 trillion yen in “fiscal measures”, without saying specifically what that meant. There was no report of how much of the package would be new spending. Abe, speaking in the southern city of Fukuoka on Wednesday, said the package would be compiled next week.

Abe’s stimulus plan comes ahead of the Bank of Japan’s policy meeting that ends on Friday. The central bank is expected to further monetary policy stimulus.

The USD/JPY could receive further support later in the day when the U.S. Federal Reserve releases its latest monetary policy statement at 1800 GMT. The Fed is expected to keep interest rates unchanged, however, investors will be looking for clues as to the timing of the next Fed rate hike. Going into the meeting, investors believe there is a 50/50 chance the central bank will raise interest rates before its December meeting.

The odds of a Fed rate hike have increased this month due to stronger-than-expected U.S. economic reports. The Fed may say that it wants to see continued improvement in the labor market, particularly wage growth and improvements in inflation before making its decision to raise rates before the end of the year.

Look for the USD/JPY to move higher into the close if the Fed is hawkish. It may give back some of its current gains if the Fed is dovish. However, shortly after it releases its statement and traders react, the focus will shift on the BoJ decision due out on Friday.

FxEmpire provides in-depth analysis for each asset 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 up to the data analysis and information in our weekly reports, which covers the current week and are published by Sunday before the new week begins. Daily we share any new events, forecasts or analysis that affect the current day. To achieve a full accurate understanding it is important that you study all of our data and analysis as a whole.

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Thursday, July 28, 2016

Government Bond Auctions

Date/Time Country Type

Jul 27 11:30 Germany Eur 1bn 2.5% Aug 2046 Bund

Jul 28 11:10 Italy Holds bond auction