USD/JPY Fundamental Weekly Forecast – BOJ Expected to Expand Stimulus Again

The Dollar/Yen drifted sideways to lower last week in a lackluster trade. Volume and volatility were well below average as investors sought protection at times in both the safe-haven U.S. Dollar and Japanese Yen.

Last week, the USD/JPY settled at 107.493, down 0.061 or -0.06%.

U.S Economic News

The U.S. Dollar was higher last week as investors reacted to more dire news on the fallout from the virus and governments across the globe moved only cautiously toward an economic re-start.

In the United States, governors in states hardest hit by the pandemic sparred with President Donald Trump over his claims they have enough tests and should quickly reopen their economies as more protests are planned over the extension of stay-at-home orders.

Flash Manufacturing PMI and Core Durable Goods Orders came in slightly better than expected, but Weekly Unemployment Claims rose again, helping to wipe out ten years of labor market gains.

President Donald Trump signed a $484 billion coronavirus relief package into law Friday as Washington plans the next steps in its unprecedented attempt to rescue an economy and health-care system bludgeoned by the pandemic.

The package becomes the fourth passed by Congress to respond to the outbreak, with a total cost approaching $3 trillion.

Japan Economic News

The big story out of Japan last week was the weaker than expected Trade Balance news.

Japan’s exports slipped for a 15th straight month in February as U.S. and China-bound shipments declined, suggesting a cooling of business activity in the world’s third-largest economy due to the coronavirus outbreak.

Ministry of Finance (MOF) data out on Wednesday showed Japan’s exports fell 1.0% from a year earlier in February, dragged by U.S.-bound shipments of cars and metal processing machinery to China.

Weekly Forecast

It’s going to be a busy week for Dollar/Yen traders with central bank activity at the forefront.

Early Monday, the Bank of Japan (BOJ) will release its outlook report, monetary policy statement and interest rate decision.

The Bank of Japan is expected to expand monetary stimulus on Monday for a second straight month to ease corporate funding strains and finance huge government spending aimed at combating the deepening economic fallout from the coronavirus pandemic.

Reuters is saying the coronavirus may offer the Bank of Japan justification to scrap what has become an obsolete, largely symbolic bond-buying target as it takes stronger action to cushion the economic low from the pandemic.

The BOJ will discuss scrapping that guidance at its policy meeting on Monday, the Nikkei newspaper reported, in a show of resolve to buy unlimited amounts of bonds. Finance Minister Taro Aso knocked down the report, telling reporters on Friday that nothing had been decided on how the finance ministry could cooperate with the BOJ.

On Wednesday, the U.S. Federal Reserve will release its monetary policy statement and interest rate decisions.

Ultimately, risk sentiment is likely to determine the direction of the USD/JPY this week with the central bank activity likely to trigger short-term volatile responses.