USD/JPY Fundamental Daily Forecast – Low Bank Holiday Volume Could Limit Price Action

The Dollar/Yen is trading higher shortly before the U.S. opening. The Forex pair is trading inside Friday range which suggests investor indecision and impending volatility. It is also bumping up against a key technical retracement area which could draw the attention of profit-takers. Furthermore, the bank holiday in Asia may be limiting the price action and the volume.

At 0943 GMT, the USD/JPY is trading 109.261, up 0.216 or _0.20%.

Traders continue to focus on the strong U.S. Dollar, expectations of higher U.S. interest rates and the easing of geopolitical tensions. Furthermore, the divergence between the monetary policies of the U.S. Federal Reserve and the Bank of Japan continues to favor the U.S. Dollar.

Last week, the BOJ left interest rates unchanged and lifted its inflation target date. On Wednesday, the Fed is expected to leave interest rates unchanged, but hawkish comments in its monetary policy statement is likely to signal a June rate hike. This is currently being priced into the market.

In other news, while the easing of geopolitical risks has grabbed the headlines recently, by making the Japanese Yen a less-desirable safe-haven asset, some analysts are also saying moves among Japanese investors to increase their foreign currency exposure at the start of Japan’s new financial year have likely contributed to the Yen’s weakness in April.

Additionally, another factor that is seen as having weighed on the Yen recently is speculation about the potential for eventual Yen-selling flows related to Japanese drug maker Takeda Pharmaceutical’s $64 billion bid to buy London-listed Shire.

Forecast

Upside momentum is underpinning the USD/JPY. This is being supported fundamentally by the firmer U.S. Dollar, rising interest rates and the easing of geopolitical tensions.

With the Forex pair rapidly approaching a key technical resistance area at 109.664 to 110.859, we could see some light profit-taking as investors prepare for this week’s Fed announcement and U.S. Non-Farm Payrolls report.

While the agreement between North Korea and South Korea to work towards “denuclearization” of the Korean peninsula is making the headlines at this time, traders may start to show some response to the upcoming meeting between President Trump and Kim Jong Un in May.

Additionally, a delegation of U.S. officials, including Treasury Secretary Steven Mnuchin and President Donald Trump’s top economic and trade advisers are all expected in China later this week for trade negotiations.

In other news, traders will get a chance to respond to minor reports on U.S. Personal Income and Pending Home Sales. However, the price action may be muted because the thin holiday trade in Asia.