USD/JPY Fundamental Daily Forecast – With Yen Falling, BOJ Not Expected to Bring Out Monetary Bazooka

The Dollar/Yen closed higher on Friday and in a position to challenge it February 20 top at 112.226 and its April 24, 2019 main top at 112.405 as six major central banks announced a coordinated action to enhance liquidity in the U.S. Dollar.

The greenback staged a savage rally last week as investors scrambled to obtain the currency and after coordinated rate cuts by central banks and billions of dollars of fund injections failed to calm panicky markets.

On Friday, the USD/JPY settled at 110.870, up 0.257 or +0.23%.

Where is Japan’s Response to the Crisis?

Noticeably absent from the headlines last week was the announcement of fiscal measures from Japan’s government and a major policy move by the Bank of Japan (BOJ). It seems they may both be distracted by the Olympics, which may or may not proceed in July.

It is possible that the Japanese government has been distracted by the Olympics, which may explain by it hasn’t announced any major fiscal measures to support the economy.

The BOJ, on the other hand, hasn’t made any major moves either, but then again, it’s been fighting a battle with the economy for many years with little success. Its short-term rates are already negative, its longer yields are stable and central bank policymakers are reluctant to slash rates any further because of concerns over bank profits.

Although the BOJ has increased some asset purchases to fight the impact of coronavirus, it doesn’t appear that it will do much more because it likes the fact that the Japanese Yen is weakening and that the other major central banks are hoarding U.S. Dollars.

According to Reuter, “Theoretically, Japan should be celebrating Yen weakness:  It is an exporter, it is the world’s biggest creditor with $3 trillion of net external assets, half its government bond market is in the safe hands of the BOJ, and even the trillions of dollars Japanese investors have parked overseas should be coming home in such a crisis. But Japan also takes no chances. With an eye on the Yen, the rate cuts will come slowly, slowly.”