USD/JPY Fundamental Forecast – September 20, 2016

The Japanese Yen treaded water most of the session against the U.S. Dollar as investors prepared for the Bank of Japan and U.S. Federal Reserve monetary policy announcements on Wednesday. The USD/JPY finished at 101.866, down 0.390 or -0.38%.

Although the Fed’s interest rate announcement has been mentioned in the same breath as the BOJ’s announcement, I believe Japan’s central bank decision will have a greater impact on the movement and volatility in the Forex markets on Wednesday. The CME Group’s MarketWatch tool says there is about a 15 percent chance of a rate hike this month. However, it may reveal language that suggests a December rate hike is imminent. This would boost the dollar and weaken the Yen.

The BOJ, on the other hand, is expected to reveal a comprehensive review of its policy framework, which combines negative interest rates with a massive asset-buying program.

Predicting what the BOJ is going to ultimately decide has proven to be difficult with this meeting. Some speculators are betting the central bank will change its method in favor of a policy mix that increases stimulus while providing protection for the banks who are struggling to deal with the impact of negative interest rates on deposits.

When the rumor of additional stimulus initially broke, the USD/JPY strengthened, but since then the Dollar/Yen has been under pressure on increased speculation the BOJ will stop short of taking dramatic action.

FORECAST

There is a certain amount of skepticism going into this meeting that the BOJ has run out of tools so investors are starting to believe it is not going to do anything too dramatic to weaken the Yen and strengthen the economy at the same time. Increased speculation on this line of thought should keep the pressure on the USD/JPY on Tuesday.

Many investors feel that turning to negative rates hasn’t worked since the BOJ made this move in January so repeating the same mistake will only make matters worse. Since this decision was made, the Japanese Yen has gained close to 16 percent against the dollar.

Barring any short-covering or position-squaring ahead of the central bank meetings on Tuesday, we’re expecting sellers to remain in control with potential downside targets at 101.41 and 101.18.

FxEmpire provides a wide variety of analysis on a daily, weekly and monthly basis ranging from our exceptional technical analysis as well as our in-depth fundamental analysis along with our daily news and market updates. To get the best understanding of each asset it is important to review the short term daily analysis with the longer term monthly reports. To get email notification when each of these are posted please sign up for our daily newsletter.

Today’s economic releases: