USD/JPY Fundamental Daily Forecast – BOJ Could Adopt ‘Wait and See’ Strategy

The Dollar/Yen closed higher on Monday as investors positioned themselves ahead of the release of the Bank of Japan’s monetary policy statement and interest rate decision early Tuesday. The price action suggests investors are expecting a dovish tone from central bank policymakers. Traders should little reaction to a drop in U.S. Treasury yields and mixed demand for risky assets.

On Monday, the USD/JPY settled at 108.786, up 0.110 or +0.10%.

In economic news, Japanese Retail Sales came in at 0.5%, better than the 0.2% forecast. The Unemployment Rate came in at 2.3%, lower than the 2.4% estimate. Preliminary Industrial Production fell 3.6%, worse than the minus 1.8% forecast. The previous month’s report was revised lower to 2.0%.

Japan’s unemployment rate dropped in June from a month earlier, the Ministry of Internal Affair and Communications said in a report on Tuesday. According to the ministry, the unemployment rate stood at 2.3 percent in the recording month, down from 2.4 percent a month earlier.

Japan’s preliminary industrial production fell more than expected in June. For the year, industrial production fell -4.1% versus -2.0% estimate. The prior month was at -2.1%. The bearish numbers reflect the slowing global economy caused by the trade tensions between the United States and China.

Daily Forecast

The Bank of Japan is widely expected to leave monetary policy unchanged and reiterate its current aggressive easing stance. This report carries event risk because some analysts believe the BOJ could tweak policy, or suggest that more stimulus was coming in the future. If central bank policymakers are more dovish then expected then the Japanese Yen could weaken.

Bloomberg Thoughts

“Some 81% of 47 economists surveyed by Bloomberg see the BOJ sticking with its current policy settings at the meeting, while 19% predict additional easing. The meeting comes the day before the Fed is widely expected to cut U.S. interest rates for the first time in more than a decade.”

“While the vast majority of analysts think the BOJ will want to conserve its scarce firepower for now, a key focus will be the BOJ’s stance on future policy. Roughly a third of polled analysts expect the bank to strengthen its pledge to keep rates at extremely low levels at the meeting.”

“We think the BOJ will adopt a wait-and-see strategy ahead of the Federal Reserve’s decision on July 31… The BOJ’s latest growth and inflation outlook and any tweaks to its forward guidance will be a focus.”