USD/JPY Fundamental Daily Forecast – No Surprises in BOJ Minutes, Focus on Fed Policy

The BOJ minutes had little effect on the USD/JPY because the data is stale. The central bank just met on January 22-23, where it kept policy on hold while cutting its inflation forecasts. The main focus for Dollar/Yen traders until Wednesday is the U.S. Federal Reserve monetary policy meeting.
James Hyerczyk
USD/JPY

The Dollar/Yen is under pressure for a second session as investors continue to price in a potentially dovish U.S. Federal Reserve while reducing safe-haven dollar positions due to the end of the U.S. government partial shutdown. Earlier today, traders should almost no reaction to the Bank of Japan Monetary Policy meeting minutes which revealed no surprises.

At 0450 GMT, the USD/JPY is trading 109.406, down 0.135 or -0.13%.

Bank of Japan Monetary Policy Meeting Minutes

Earlier today, the Bank of Japan released the minutes from its December 19-20 Monetary Policy meeting. The minutes showed that Bank of Japan policymakers disagreed over the appropriate level of bond yields. The minutes also revealed that policymakers were struggling to work within the BOJ’s monetary framework while battling the weakening global economy.

As far as policymaker disagreement is concerned, one BOJ member said long-term yields should be allowed to temporarily turn negative. Another member agreed, saying yields have fallen due to worries about the U.S.-China trade dispute and that conducting market operations to raise yields would tighten monetary policy. Still another member said the central bank should strengthen policy to reach its 2 percent inflation target. He said long-term yields need to be higher to ease the burden on the financial system and make corporate bonds more attractive to investors. He also said that revising the BOJ’s government bond purchases is one futures option.

The minutes from the policy meeting seemed to highlight rising concerns from the trade dispute between the U.S. and China and the impact it is having on Japan’s economic growth and BOJ policy.

“One member expressed the recognition that… long-term yields should be allowed to temporarily turn negative,” the minutes showed.

“The member continued that it was natural for such yields to move more or less symmetrically from around zero percent.”

Forecast

The BOJ minutes had little effect on the USD/JPY because the data is stale. The central bank just met on January 22-23, where it kept policy on hold while cutting its inflation forecasts.

The main focus for Dollar/Yen traders until Wednesday is the U.S. Federal Reserve monetary policy meeting.

With Fed Chair Jerome Powell and several other Fed members acknowledging risks to the U.S. economy as global momentum weakens, leaving rates as is should not be a surprise. Furthermore, the Fed is also likely to remain more cautious throughout the year because of global growth uncertainties.

Putting additional pressure on the USD/JPY is the report from The Wall Street Journal which said Federal Reserve officials are nearing a decision on when to end its balance sheet reduction program. This is potentially bearish for the U.S. Dollar. Such a move by the Fed will come across to investors as dovish.

Also helping to pressure the U.S. Dollar is the ending of the U.S. government shutdown. This news reduced investor demand for the safety of the greenback.

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