USD/JPY Monthly Fundamental Forecast – February 2016

Outlook and Recommendation

The USD/JPY reversed risk off gains after lackluster data and a decision by the BoJ hit the news the last trading day of the month. The yen fell to trade against the greenback at 131.13 after trading days before in the 117 level. The pair ended the month with a gain of 0.66% which would have been just the opposite just 24 hours before.

The Bank of Japan on Friday became the latest central bank to move its deposit rate into negative territory.

By doing so, the BOJ thrust the theme of monetary-policy divergence—which market strategists pointed to as the main driver behind the dollar’s aggressive rally between the summer of 2014 and early 2015—back into the spotlight.

Negative interest rates are an ultramodern phenomenon; the product of a global financial system still struggling to reinvigorate economic growth in the wake of the global financial crisis.

The era of negative interest rates began in July 2012 when the Denmark National Bank set its deposit rate below zero to protect its economy from an influx of hot money as the Eurozone debt crisis escalated.

The dollar soared against the yen Friday after the Bank of Japan shocked investors by cutting its deposit rate into negative territory—posting its largest daily gain against the Japanese currency since Oct. 31, 2014.

That date is significant for the BOJ; it was the day the central bank announced an unexpected expansion of its massive program of asset purchases as the Japanese economy struggled with the added pressure from recent tax hikes.

The yen dropped to ¥121.34 to the dollar after the announcement—its weakest level in more than five weeks.

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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