USD/JPY Monthly Fundamental Forecast – July 2016

The USD/JPY opened July at 103.22 seeing a loss of almost 6% in June after the UK Brexit vote sent traders to safety. The yen gave up a bit of its momentum on the very last trading day having been down almost 8% earlier in the day. This month will be all about the elections and the Bank of Japan due to meet at the end of July but there is expectations that the bank might hold its meeting early to combat the current situation.

With a little more than a week until Japan goes to the polls for an upper-house election, a batch of economic data released Friday underscores the challenge Prime Minister Shinzo Abe faces in convincing voters that his policies are working.

Consumer prices excluding fresh food fell for a third straight month and household spending declined, undermining efforts to revitalize the world’s third-largest economy. While corporate confidence and unemployment were unchanged, there is still little pressure for higher wages.

In the summary of opinions from the BOJ’s June 15-16 policy meeting released on June 24, one BOJ member said “there are signs of a need for caution with respect to achieving the price stability target.” If it becomes more likely that the timing of reaching the CPI target of around 2 percent will be delayed, the BOJ will need to reiterate its commitment to achieving the goal to the public and market by taking additional monetary easing measures, the member said.

The data showing weakness in confidence and spending may also increase pressure on Abe and his government to soon provide fiscal stimulus as a way to boost the economy. Toshihiro Nikai, chairman of the ruling Liberal Democratic Party’s general council, called for 20 trillion yen ($195 billion) of government stimulus, the Nikkei newspaper reported on June 28.

“The fruits from Abenomics, which depended on a weak yen policy, have gone away,” Muto said. “The government will probably have a large increase in spending in autumn” to boost the economy.

Our forecast for July 2016: 102.25-1.05

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.