USD/JPY Fundamental Daily Forecast – Tentative Trade Due to Government Shutdown, BOJ Announcements

The Dollar/Yen is trading slightly lower ahead the release of the Bank of Japan’s monetary policy report. Gains are also being limited by rising U.S. Treasury yields.

Today’s inside move on the daily chart suggests investor indecision and impending volatility. The indecision is likely being driven by uncertainty over the length of the U.S. government shutdown.

At 1204 GMT, the USD/JPY is trading 110.710, down 0.085 or -0.08%.

In addition to the BOJ Monetary Policy Statement, the central bank will release its Outlook Report and Policy Rate. It is widely expected to leave its benchmark interest rate at -0.10%.

The U.S. government is preparing for a shutdown for the third day as the dispute between the Republicans and President Trump and the Democrats over immigration continues.

Over the week-end, the Senate failed to strike a deal to break an impasse before the work week starts in Washington.

On Monday, Senate Majority Leader Mitch McConnell will move to advance a stopgap spending bill at 1700 GMT, he said Sunday night, but Senate Minority Leader Chuck Schumer objected as Democrats still had not seen enough progress in talks on issues like immigration to move forward.

Additionally, according to CNBC, speaking on the Senate floor Sunday night, McConnell called for an end to the shutdown and outlined what appeared to be assurances to Democrats, who have nearly all opposed the short-term GOP proposals to keep the government running. McConnell has pushed for a bill to fund the government through February 8, which House Republicans also largely back.

Forecast

We could be looking at a range bound session due to the uncertainty over the government shutdown and ahead of the BOJ announcements.

The Bank of Japan has the most accommodative policy among the major central banks. Still its decision to reduce its purchases of government bonds earlier this month and comments about the negative effects of prolonged quantitative easing late last year, have analysts wondering when the BOJ will take action and push the Yen higher.

The BOJ is expected to hold its monetary policy unchanged early Tuesday, but the USD/JPY could move sharply nonetheless depending on the language used by the central bank in its statement.

Hawkish commentary will be bullish for the Japanese Yen. Dovish commentary could trigger a short-covering rally in the USD/JPY.