USD/JPY Weekly Fundamental Analysis, April 25 – April 29, 2016 –Forecast

The USD/JPY rose to its highest level in three weeks after a report said the Bank of Japan is considering expanding its negative rate policy to bank loans and could cut rates further.

The Dollar/Yen settled at 111.673, up 2.951 or +2.71%. This was the biggest weekly gain for the Forex pair since late October 2014.

The BoJ could consider the new step if policymakers decide to lower the negative 0.1 percent interest rate applied to some bank reserves parked with the central bank, according to Bloomberg.

Friday’s headline news in itself was not the factor driving the Japanese Yen lower. It’s the possibility of further cuts later. The suggested move will actually give the Bank more room to cut rates deeper into negative territory later, and that’s what traders reacted to.

Currently, if the BoJ were to apply its negative rate policy to bank loans, it would allow the central bank to cut its deposit rates deeper into negative territory without acting as a headwind for the nation’s banks.

The U.S. Federal Reserve will issue its interest rate decision and monetary policy statement on Wednesday before Friday’s expected Bank of Japan decision.

The Fed is widely expected to leave interest rates unchanged with only 2.3 percent of traders looking for a rate hike. However, its monetary policy statement may contain language that boosts the possibility of a rate hike in June.

In its last statement, the central bank reduced the number of potential rate hikes from four to two, citing threats from global headwinds. Since these have failed to materialize, the Fed may hint at resuming its tightening cycle in June.

Any talk of rate hikes by the Fed is likely to bolster the USD/JPY even further.

We could see a volatile two-sided trade this week. Hawkish language from the Fed could drive the U.S. Dollar higher against the Yen, but the Yen could strengthen if the BoJ’s announcement is softer than expectations. Since Friday’s action indicates the expected BoJ decision is already being priced in, any less-dovish surprise is likely to lead to profit-taking and a subsequent sell-off in the Forex pair.

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.

Major Economic Events for the week:

Monday, April 25, 2016

AUD        ANZAC Day Holiday

NZD        ANZAC Day Holiday

Tuesday, April 26, 2016

Wednesday, April 27, 2016

Thursday, April 28, 2016

Friday, April 29, 2016

  JPY        Showa Day Holiday

Government Bond Auctions

Date Time       Country           Auction

Apr 25 N/A UK 2.5% July 2065 Gilt (Syndicated tap)

Apr 25 11:35 Germany Eur 1.5bn Apr 2017 Bubill

Apr 26 11:10 Italy Holds BTPei auction

Apr 26 19:00 US Holds 2-year note auction

Apr 27 11:03 Sweden Holds bond auction

Apr 27 11:10 Italy Holds CTZ auction

Apr 27 11:30 Germany Eur 1bn 2.5% Aug 2046 Bund

Apr 27 19:00 US 2-year FRN, 5-year note auctions

Apr 28 11:10 Italy Holds 5yr/10yr bond auctions

Apr 28 19:00 US Holds 7-year note auction