USD/JPY Monthly Fundamental Forecast August 2012

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Outlook and Recommendation

The USD/JPY has been stuck in a range earlier in the month at the mid 79 price level and then towards the end of the month at the bottom of the 78.00 price, now trading at 78.13

After failing to break 81 in early July, USDJPY has drifted back towards 78 on the back of risk aversion and a shifting yield spread. In tandem, the CFTC reported that traders were rebuilding long yen positions; while technicals suggest a period of stability. We expect that loose monetary policy, a fragile economy and shifting sentiment will support USDJPY (yen weakness) and hold Q3 forecast of 78.

Highest: 80.10

Lowest: 77.94

Difference: 2.15

Average: 78.96

Change %: -1.67

Japan remains a major economic force, despite its worsening sovereign debt profile and the rise of China in global economic and financial affairs. Proof of this is the sustained strength of the Japanese yen (JPY) in times of global financial stress in contrast with the policy-mandated weakness of the Chinese Renminbi to aid a weakening export sector. The recently unveiled July 2012 report by the Asian Development Bank included an upward revision to Japan’s growth forecast for this year to 2.2% and a deceleration to 1.5% in 2013. A decline in the June unemployment rate to 4.3% also was a positive surprise for market participants. The JPY continues to be a preeminent safehaven asset and a world reserve currency. Nevertheless, the Japanese economy, which has been receiving the impetus from substantial reconstruction efforts, is not immune to the global economic deceleration under way as shown in relatively weaker retail sales and foreign trade data in June. Looking ahead, domestic demand should compensate somewhat for the fragile international trade context.

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.

Central Bank Name: Bank of Japan

Date of next meeting or last meeting: Aug 09

Current Rate:0-0.10 % (- 0.10)

Statement highlights of last meeting:  At the Monetary Policy Meeting, the Policy Board of the Bank of Japan decided, by a unanimous vote to set the following guideline for money market operations for the intermeeting period: The Bank of Japan will encourage the uncollateralized overnight call rate to remain at around 0 to 0.1 percent. Overseas economies on the whole still have not emerged from a deceleration phase but U.S. economic conditions have continued to improve moderately and the sluggish European economy has stopped deteriorating.  Global financial markets have generally been stable. Japan’s economic activity has shown some signs of picking up, although it has remained more or less flat.  Exports have so far remained more or less flat.  As for domestic demand, business fixed investment has been on a moderate increasing trend aided by the restoration of disaster-stricken facilities. Private consumption has continued to increase moderately due to the effects of measures to stimulate demand for automobiles.  Housing investment has generally been picking up. Under these circumstances, business sentiment has been improving moderately particularly in domestic demand-oriented sectors.  Meanwhile, financial conditions in Japan have continued to ease. Japan’s economy is expected to return to a moderate recovery path as domestic demand remains firm and overseas economies emerge from the deceleration phase.

Economic events for the month of August affecting AUD, JPY and NZD

Date

Time

Currency

Event 

Forecast

Previous

Aug 2

1:30

AUD

Retail Sales m/m

0.6%

0.5%

 

1:30

AUD

Trade Balance

-0.38B

-0.29B

Aug 7

4:30

AUD

Cash Rate

3.50%

3.50%

 

4:30

AUD

RBA Rate Statement

   
 

23:50

JPY

Current Account

 

0.28T

Aug 8

22:45

NZD

Employment Change q/q

 

0.4%

 

22:45

NZD

Unemployment Rate

 

6.7%

Aug 9

1:30

AUD

Employment Change

 

-27.0K

 

1:30

AUD

Unemployment Rate

 

5.2%

Aug 10

1:30

AUD

RBA Monetary Policy Statement

   

Aug 13

22:45

NZD

Core Retail Sales q/q

   

Aug 15

3:00

NZD

Inflation Expectations q/q

   
 

22:45

NZD

PPI Input q/q

   

Aug 21

1:30

AUD

Monetary Policy Meeting Minutes

   

Aug 30

1:00

NZD

NBNZ Business Confidence

   
 

1:30

AUD

Private Capital Expenditure q/q

   

 

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About: FX Empire Analyst - Barry Norman

Barry produces a private Daily Market Review newsletter that is distributed around the globe to over 25,000 subscribers and recently published a book on Options Trading that is available from amazon.com

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