USD/JPY Fundamental Daily Forecast – BOJ Summary Shows Policymakers Debated Near-Term Stimulus

The Dollar/Yen is trading slightly lower on Monday despite firmer Treasury yields and a slight increase in demand for risky assets. The price action suggests investors are already preparing for this week’s U.S. Non-Farm Payrolls report on Friday that could determine whether the Federal Reserve makes another rate cut later in the month. If this is true then we’re likely to see a sideways trade this week.

At 07:57 GMT, the USD/JPY is trading 107.844, down 0.096 or -0.09%.

Last week, the Dollar/Yen rallied as investors shrugged off the political turmoil in Washington after the House Democrats opened an impeachment inquiry on President Trump. Helping to support the dollar against the yen were less-dovish comments from Federal Open Market Committee (FOMC) members, who said the economy may not need the Fed to be so aggressive with its easing policy. This suggests the Fed may hit the pause button on rate cuts at its October 29-30 meeting.

Also helping to weaken the Yen was speculation the Bank of Japan (BOJ) was preparing to hit the economy with a rate cut and possibly additional stimulus when it makes its policy announcements on October 31.

BOJ Summary of Opinions

A summary of BOJ policymaker opinions showed they debated the feasibility of ramping up stimulus in the near future when they met for a rate review in September as escalating overseas risks clouded the economic outlook.

The BOJ Summary of Opinions of the September 18-19 policy meeting also showed that some on the nine-member board stressed the need to communicate to markets the central bank has all options on the table including cutting interest rates, increasing asset buying and printing money at a faster pace.

“There is a significant chance the economy will lose momentum to hit our price target. As such, we should consider whether or not to take additional steps,” one member was quoted as saying. “The BOJ needs to consider all possible policy measures without preconception,” the member added.

Another board member said it was important for the BOJ to communicate to markets it has not run out of policy options, and that “any kinds of measures are possible at all times.”

Daily Forecast

The BOJ Summary of Opinions indicates the central bank is stuck between a rock and a hard place. Years of heavy stimulus has failed to ignite inflation and left the central bank with few ammunition to fight the next recession.

Furthermore, aggressive BOJ policy such as prolonged ultra-low rates have also strained financial institutions’ profits. Last week, BOJ Governor Haruhiko Kuroda said he wouldn’t rule out deepening negative rates, but this move could push some regional banks into financial trouble.