USD/JPY Fundamental Forecast – June 2016

The USD/JPY closed the month at 110.68 against a stronger US dollar as traders expect Prime Minister Abe to cancel or delay the 2^nd part of the sales tax increase. After the G7 meeting the chances of intervention lowered while the Japanese economy remained in the doldrums.  The U.S. currency posted its best monthly gain in almost two years on speculation the Federal Reserve is getting closer to raising interest rates as soon as June. Bloomberg’s Dollar Spot Index, which tracks the greenback against 10 major peers, added 3.7 percent in May, its best performance since September 2014.

The yen strengthened 0.6 percent, after sliding 3.8 percent in May. Prime Minister Abe told lawmakers he will “mobilize fiscal policy to achieve strong growth.”

“Abe has already decided on the sales tax and he said he will come up with more fiscal stimulus,” said Roy Teo, a senior currency strategist in Singapore at ABN Amro Bank NV. “From that perspective perhaps the market is speculating that with more fiscal stimulus in the pipeline then the BOJ may delay further easing policies. If the BOJ delays, then it’s positive for the yen.”

USDJPY had plunged to a new low and in May at levels last seen in Q4 2014. Risk appears balanced to the downside, given the constellation of factors that have shifted dramatically on a YTD basis. Interest rate differentials, positioning, and sentiment appear to favor further weakness in USDJPY with the rebound of the dollar our target of 112 remains for June

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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