USD/JPY Fundamental Daily Forecast – Mixed Fed Speakers Could Lead to Two-Sided Trade

The Dollar/Yen is trading slightly lower on Friday after posting its second lower-high, lower-low since Wednesday’s main top. The simple explanation for the weakness is position-adjusting related to the Fed cutting rates on Wednesday and the Bank of Japan leaving rates unchanged early Thursday. Usually when this occurs, the spread between U.S. Government bonds and Japanese Government bonds tightens, making the Japanese Yen a more attractive currency. It’s more of a “house-keeping” move and not a major trend-changing event like aggressive safe-haven buying.

At 11:34 GMT, the USD/JPY is trading 107.996, down 0.058 or -0.05%.

There were no major economic reports out of Japan overnight and there aren’t any from the United States on Friday. However, several Fed speakers are on tap and they could move the Forex pair especially since the Federal Reserve was unclear about future rate cuts.

Earlier on Friday, St. Louis Fed President James Bullard said that the Federal Reserve should have cut interest rates by 50 basis points on Wednesday, expressing concerns over trade policy uncertainty, while arguing that the initial cut on July 31 appeared to have little to no impact on the economy so far.

“It is prudent risk management, in my view, to cut the policy rate aggressively now and then later increase it should the downside risks not materialize,” Bullard wrote in a blog post Friday morning.

New York Federal Reserve President John Williams is also scheduled to speak at 12:15 GMT. He voted for a rate cut on Wednesday. He is likely to defend the case for further rate cuts. Williams said in a speech in July that central bankers need to act quickly and forcefully when rates are low and growth is slowing, arguing at that “it’s better to take preventative measures than to wait for disaster to unfold.”

Boston’s Eric Rosengren preferred no rate change at all, underscoring the widening gap in Fed views on where to take monetary policy.

In August, Rosengren signaled no willingness to support further interest rate cuts, saying that U.S. economic conditions are still good and that easing policy could encourage a worrying debt build-up.

“It is a bigger risk to encourage people to take on too much more risk at this time,” Rosengren said to Bloomberg Television.

“Global conditions are weak. So I’m not saying there aren’t circumstances in which I would be willing to ease. I just want to see evidence that we are actually going into something that’s more of a slowdown,” he added.