USD/JPY Fundamental Forecast – June 2, 2016

Falling global equity prices drove investors into the Japanese Yen, helping to pressure the USD/JPY on Wednesday. The Forex pair close at 110.574, down 0.149 or -0.13%. The range was limited, however, and volume appeared to be below average.

The Japanese Yen is primarily a funding currency. When there is increased demand for risk, investors borrow in Yen to invest in risky assets like stocks. This puts downside pressure on the Yen. When stocks sell off, these investors have to buy Yen to pay back the loans. We are currently experiencing that refunding cycle ahead of Friday’s U.S. Non-Farm Payrolls report.

In other news, Japanese capital expenditures accelerated in the first quarter from the prior three-month period, suggesting gross domestic product growth could be revised up, but analysts remain wary about the outlook given growing pressure on corporate earnings.

Corporate profits fell in January-March at the fastest pace in more than four years, which could encourage Japanese companies to cut back on future capital expenditure plans.

Today’s capital expenditures data suggests that revised GDP due on June 8 may show Japan’s economy in the Jan-March quarter grew more than first reported, but a host of other indicators have pointed to a recovery straining against weak consumption and exports.

Also on the news front, Japanese Prime Minister Shinzo Abe is expected on Wednesday to delay an increase in the nationwide sales tax as worries about weak consumer spending undermine the government’s argument that is policies are working to reflate the economy.

Look for increased volatility later today with the release of the U.S. Manufacturing PMI data. Traders are expecting it to remain unchanged at 50.5. The ISM Manufacturing PMI data for May is expected to come in at 50.4 versus an April reading of 50.8. Higher-than-expected readings will help support the case for a Fed rate hike in June or July. This will help to underpin the U.S. Dollar against the Japanese Yen. A weaker reading will be bearish for the dollar.

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.

Today’s economic releases:

 

Upcoming Economic Events that you should be monitoring:

Thursday, June 2, 2016

Government Bond Auctions

Jun 01 10:30 Denmark Holds bond auction

Jun 01 11:30 Germany Eur 4bn 0% Apr 2021 Bobl

Jun 01 11:30 UK Gbp 2.75bn 1.5% 2021 Gilt

Jun 01 17:20 Sweden Announces details of bond auction on Jun 08

Jun 02 10:30 Spain Holds bond auction

Jun 02 10:50 France Eur 8-9bn 2.25% May 2024, 0.5% May 2026 & 3.25%

Jun 02 11:03 Sweden Sek 0.5bn 0.125% 2019 I/L & Sek 0.5bn 0.125% 2026 I/L bonds

Jun 06 13:00 Norway Details of bond auction on Jun 08

Jun 07 11:00 Netherlands Eur 4-6bn Jan 2022 DSL

Jun 07 11:00 Austria Holds bond auction

Jun 07 11:30 Germany Holds I/L bond auction

Jun 07 11:30 UK 4.5% 2046 Gilt

Jun 08 11:03 Sweden Holds bond auction

Jun 08 11:05 Norway Holds bond auction

Jun 08 11:30 Germany Eur 5bn Jun 2018 Schatz

Jun 08 17:20 Italy Announces details of bond auction

Jun 09 11:30 UK 0.125% 2036 I/L Gilt

Jun 09 17:20 Sweden Announces details of I/L auction on Jun 16