USD/JPY Fundamental Daily Forecast – Plunges in Reaction to BOJ Summary of Opinions

The Dollar/Yen struggled for a fourth day on Wednesday before closing slightly better. The Forex pair was supported by increased demand for higher-yielding assets.

The USD/JPY settled at 113.324, up 0.096 or +0.08%.

Earlier in the week, Japan’s core consumer prices rose for the 11^th straight month, up 0.9 percent year-on-year, and household spending jumped in November.

On Tuesday, Japanese Prime Minister Shinzo Abe urged companies to raise wages by 3 percent or more next year, keeping up pressure on firms to spend their huge cash pile on wages to broaden the benefits of his “Abenomics” stimulus policies.

Additionally, minutes of the BoJ’s October meeting, released on Tuesday, showed most members shared the view that the central bank should maintain its easy policy. The BOJ kept monetary policy steady last week and its governor reassured markets the central bank will lag well behind overseas peers in ending its ultra-easy policies.

Forecast

At 1044 GMT, the USD/JPY is trading 112.861, down 0.463 or -0.41%. Traders are ignoring the early up move in U.S. Treasury yields and firmer U.S. equity markets.

The primary driver of the price action today is solid economic data from Japan. Preliminary Industrial Production came in at 0.6%, beating the 0.5% estimate. Retail Sales were up 2.2%, better than the 1.1% estimate and a market improvement from the previous read of -0.2%. Bank of Japan Core CPI was up 0.6% versus a 0.5% estimate.

The Bank of Japan Summary of Opinions showed that some Bank of Japan board members called for a debate about raising interest rates or lowering purchases of exchange-traded funds in response to the improving outlook.

If the outlook for prices and the economy is expected to improve the BOJ will need to consider whether “adjustments in the level of interest rates will be necessary,” one board member said.

Another board member said the BOJ should examine the policy effects and the possible side effects of ETF purchases from “every angle” because of rising stock prices and earnings.

The news from Japan should be enough to keep the pressure on the USD/JPY, but losses may be limited by a surge in demand for U.S. equities. Additionally, despite how BOJ members feel about raising interest rates, Governor Haruhiko Kuroda said clearly last week that as long as consumer prices remain distant from the BOJ’s 2 percent inflation target he does not want to raise rates.