USD/JPY Fundamental Daily Forecast – Treasury Yields Will Determine Direction

The Dollar/Yen is trading nearly flat with many of the major players on the sidelines ahead of today’s U.S. Federal Reserve announcements at 18:00 GMT. The current intraday inside move suggests investor indecision and impending volatility. It follows yesterday’s wide range and potentially bearish technical closing price reversal top that was formed after the Bank of Japan’s monetary policy statement was less-dovish than expected.

At 08:48 GMT, the USD/JPY is trading 108.563, down 0.040 or -0.04%.

Bank of Japan

Early Tuesday, the Bank of Japan voted to leave its interest rate unchanged at -0.10 percent. However, it also told investors it could announce more stimulus if its economy continues to deteriorate in response to the trade dispute between the United States and China. Japan’s central bank promised to act “without hesitation” to fight any economic slump that is quickly spreading throughout Asia.

In his post-meeting press conference, Bank of Japan Governor Haruhiko Kuroda warned heightened risks overseas “threaten the economy’s momentum” as its central bankers became the latest to signal a shift towards looser policy.

Kuroda also said the central bank strengthened its commitment to act pre-emptively against risks to the economy, as protectionist policies and trade tensions were delaying an expected rebound in global growth.

“I don’t think Japan has lost momentum to hit the BOJ’s price goal, or that there is an imminent risk of this happening,” Kuroda told a news conference.

“But overseas risks are heightening. If this is prolonged, that could increase risks for Japan and threaten the economy’s momentum to hit our price goal. If this happens, we will ease policy without hesitation.”

Additionally, the Bank of Japan also trimmed its GDP growth forecast for the year to March 2020 to 0.7 percent, a downgrade of 0.1 percentage points, and predicted that inflation will continue to be well below its 2 percent target.

The BOJ also kept intact its forward guidance, or a pledge central banks make on future monetary policy, committing to keep rates at current ultra-low levels at least through spring 2020.

Economic News

Japan Consumer Confidence came in at 37.8, below the 38.5 forecast. Housing Starts rose 0.3%, beating the -2.2% estimates.

In the U.S. the Fed will release its interest rate decision at 18:00 GMT. It is widely expected to cut its benchmark rate by 25-basis points. However, traders will be looking for clues about forward guidance. The market is currently pricing in two rate cuts in September and December.

USD/JPY traders should pay close attention to Treasury yields. They will determine which way the Dollar/Yen moves late Wednesday. If yields fall then this will mean that investors believe the Fed was not dovish enough. The USD/JPY will fall on this news. Higher yields will mean the market believes the Fed made the right move and sent the right signal about future rate cuts. The USD/JPY could be underpinned by this news.