USD/JPY Fundamental Weekly Forecast – BOJ Expected to Leave Policy Unchanged

The Bank of Japan will issue its Outlook Report and Monetary Policy on Tuesday. It is expected to leave interest rates and policy unchanged. Also expect policymakers to say they are optimistic about a recovery in the economy because of the signing of the U.S.-China trade deal.
James Hyerczyk

The Japanese Yen hit a multi-month low last week, fueled by increased demand for higher-yielding assets, which made the safe-haven currency a less-desirable investment. Better-than-expected U.S. economic data also drive U.S. interest rates higher, widening the spread between U.S. Government bond and Japanese Government bond yields.

The Bank of Japan was in the news last week ahead of this week’s BOJ interest rate and policy decisions

The Bank of Japan cut its economic assessment for three of the country’s nine regions on Wednesday but remained cautiously optimistic that domestic demand could help offset a slowdown in exports and manufacturing.

Also on Wednesday, Governor Haruhiko Kuroda held to the BOJ’s view that the Japanese economy will see moderate growth despite weak exports and output, hit by the global slowdown and natural disasters at home.

On Thursday, Reuters reported the Bank of Japan is expected to keep monetary policy steady this week and nudge up its economic growth forecast, as the U.S.-China trade deal and de-escalation in Middle East tensions take some pressure off the central bank for more stimulus.

Last week, the USD/JPY settled at 110.170, up 0.663 or +0.61%.

Better US Data Drives Demand for Dollar

Consumer prices rose slightly less than expected in December and monthly underlying inflation pressures retreated, which could allow the Federal Reserve to keep interest rates unchanged throughout this year.

The U.S. Labor Department also reported its producer price index for final demand ticked up 0.1% last month after being unchanged in November.

Weekly jobless claims unexpectedly dropped by 10,000 to 204,000. Economists polled by Reuters expected a print of 216,000. Meanwhile, retail sales climbed by 0.3% in December, matching expectations. The Philadelphia Federal Reserve business index also jumped to 17 in January from 2.4 in December.

Finally, U.S. housing starts soared nearly 17% in December to a 13-year high, according to a Friday release from the Census Bureau.

Weekly Forecast

Major U.S. economic releases will be scarce this week. Nonetheless, traders will continue to focus on the direction of U.S. Treasury yields and demand for risky assets will continue to drive most of the price action.

The Bank of Japan will issue its Outlook Report and Monetary Policy on Tuesday. It is expected to leave interest rates and policy unchanged. Also expect policymakers to say they are optimistic about a recovery in the economy because of the signing of the U.S.-China trade deal. Furthermore, expect them to say that they stand ready to provide more stimulus if necessary.

Don't miss a thing!
Discover what's moving the markets. Sign up for a daily update delivered to your inbox

Latest Articles

See All

Expand Your Knowledge

See All
The content provided on the website includes general news and publications, our personal analysis and opinions, and contents provided by third parties, which are intended for educational and research purposes only. It does not constitute, and should not be read as, any recommendation or advice to take any action whatsoever, including to make any investment or buy any product. When making any financial decision, you should perform your own due diligence checks, apply your own discretion and consult your competent advisors. The content of the website is not personally directed to you, and we does not take into account your financial situation or needs.The information contained in this website is not necessarily provided in real-time nor is it necessarily accurate. Prices provided herein may be provided by market makers and not by exchanges.Any trading or other financial decision you make shall be at your full responsibility, and you must not rely on any information provided through the website. FX Empire does not provide any warranty regarding any of the information contained in the website, and shall bear no responsibility for any trading losses you might incur as a result of using any information contained in the website.The website may include advertisements and other promotional contents, and FX Empire may receive compensation from third parties in connection with the content. FX Empire does not endorse any third party or recommends using any third party's services, and does not assume responsibility for your use of any such third party's website or services.FX Empire and its employees, officers, subsidiaries and associates, are not liable nor shall they be held liable for any loss or damage resulting from your use of the website or reliance on the information provided on this website.
This website includes information about cryptocurrencies, contracts for difference (CFDs) and other financial instruments, and about brokers, exchanges and other entities trading in such instruments. Both cryptocurrencies and CFDs are complex instruments and come with a high risk of losing money. You should carefully consider whether you understand how these instruments work and whether you can afford to take the high risk of losing your money.FX Empire encourages you to perform your own research before making any investment decision, and to avoid investing in any financial instrument which you do not fully understand how it works and what are the risks involved.