USD/JPY Monthly Fundamental Forecast – May 2016

The USD/JPY soared to its strongest level in over a year to trade at 1.0645 seeing a gain for the yen of 5.45% while the pair is trading at down 11.53% year to date. The Bank of Japan surprised markets and held pat and there is no meeting on the schedule this month which will cause a problem for the economy as the strong yen will weigh on exports.

Faced with anemic economic growth and a battle against deflation, Japan’s central bank had been widely expected to add to the extraordinary monetary easing in place since 2014 in this week’s announcement. Instead it stood pat, sending the US dollar to its biggest slump against the yen in five years. Adding to negative sentiment for the greenback, figures showed US economic growth slowed to a 0.5 percent annual pace in the first quarter and consumer spending also slowed. (Scoop)

FxEmpire team of analysts expect the currency pair to move back to the 1.12 level during the month.

The BoJ forecasts that the price stability target of 2% y/y for core inflation (excluding food) will be achieved between April and September 2017. Analysts estimate that the headline rate will temporarily rise above the 2% mark after April 2017 when the second consumption tax rate increase (from 8% to 10%) begins to be reflected in prices. Nevertheless, we believe that underlying inflationary pressures, which exclude the impact of the tax rate hike, will remain more muted and the target will not be achieved before the end of 2017. In February, headline inflation accelerated to 0.3% y/y from zero the month before, while core inflation remained at 0.0% y/y.

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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