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USD/JPY Fundamental Daily Forecast – Bank of Japan Core CPI Misses Expectations

By:
James Hyerczyk
Published: May 22, 2018, 06:53 UTC

The direction of the Forex pair the rest of the week is likely going to be controlled by the comments of several Fed officials and the minutes of the U.S. central bank’s last monetary policy meeting due to be released on Wednesday at 1800 GMT. Regarding the minutes, investors will focus on the Fed’s inflation outlook.

USD/JPY

The Dollar/Yen initially surged on Monday in response to the upbeat news about U.S.-China trade relations, firm Treasury yields and expectations for further rate hikes later in the year. However, the Forex pair retreated into the close as the initial news about China wore off and Treasury yields ended the session flat. Investors may have also started to square positions ahead of the release of the Fed minutes on Wednesday.

The USD/JPY settled at 111.045, up 0.286 or +0.26%.

 USDJPY
Daily USD/JPY

To recap the events which set in motion the early rally, Treasury Secretary Steven Mnuchin said over the weekend the prospect of a trade war was “on hold” following an agreement to suspend tariff threats.

On Saturday, negotiators from the world’s two largest economies said they would continue talking about measures under which Beijing would import more energy and agricultural commodities from the U.S. in an effort to bridge the $335 billion annual U.S. goods and services trade deficit with China.

A pull-back in the U.S. 10-year Treasury yields from seven-year highs set last week likely prompted traders to book some profits on their bullish dollar bets.

In other news, there were no major economic reports on Monday, but scheduled to speak was FOMC Member Raphael Bostic.

Atlanta Federal Reserve Bank President Raphael Bostic said on Monday the U.S. economy is close to meeting the Fed’s employment and inflation goals, with growth of around 2.5 percent expected this year.

In prepared remarks to an economic group in Atlanta he did not update his views on interest rates, but has recently said he has a base case for two additional rate increases this year.

He also said that as the Fed debates possible changes to its inflation framework, he is “drawn to” systems that offset years of below- or above-target inflation with “misses” in the opposite direction.

Forecast

The Dollar/Yen is under some light selling pressure early Tuesday. Once again, this is related to lower Treasury yields and some Fed minutes-related selling.

At 0639 GMT, the USD/JPY is trading 111.099, up 0.053 or +0.05%.

The direction of the Forex pair the rest of the week is likely going to be controlled by the comments of several Fed officials and the minutes of the U.S. central bank’s last monetary policy meeting due to be released on Wednesday at 1800 GMT. Regarding the minutes, investors will focus on the Fed’s inflation outlook.

Earlier today, Bank of Japan Core CPI came in below expectations at 0.5%. This may be another sign that Abenomics isn’t working and that the central bank will keep interest rates at historically low levels for some time to come.

Later today, investors will get the opportunity to react to the latest U.S. data on Richmond Manufacturing. Early Wednesday, Japan will release its latest data on Flash Manufacturing PMI.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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