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

The holiday-shortened week produced little major movement in the Dollar/Yen last week with most of the price action controlled by the direction of U.S. Treasury yields. The Forex pair did extend the 15-week rally with a move to 112.170, its highest level since the week-ending December 20, but there was very little follow-through to the upside. The higher-high, lower-close produced a potentially bearish closing price reversal top, however, this may have been fueled by the below-average trading volume.

Last week, the USD/JPY settled at 111.936, down 0.077 or -0.07%.

Economic data was mixed last week with Tertiary Industry Activity falling 0.6%, worse than the -0.2% forecast. However, the previous report was revised higher to 0.6%. Revised Industrial Production rose 0.7%, but missed the 1.4% forecast. Flash Manufacturing PMI was 49.5, slightly above the 49.4 forecast.

On the positive side, the Trade Balance came in at -0.18T, better than the -30T forecast. However, the previous month was revised lower to 0.03T. National Core CPI rose 0.8%, beating the 0.7% forecast.

In the U.S., the Empire State Manufacturing Index came in at 10.1, up from 3.7 and above the 8.1 estimate. The Trade Balance improved to -49.4B, better than the -53.5B forecast.

Core Retail Sales jumped 1.2%, beating the 0.7% forecast. The previous month was also revised higher to -0.2%. Retail Sales came in at 1.6%, better than the 0.9% forecast. Weekly Jobless Claims continued to signal a healthy labor market, falling to 192K.

On the negative side, Flash Manufacturing PMI was 52.4, lower than the 52.8 forecast. Flash Services PMI was 52.9, also below the 55.0 forecast. Building Permits were 1.27 million units, lower than the 1.30 million unit forecast. Housing Starts were 1.14 million units, missing the 1.23 million unit estimate.

Weekly Forecast

This week’s direction is likely to be determined by the movement in Treasury yields and investor appetite for risk.

The catalysts behind the movement of the Japanese Yen this week will be the Bank of Japan Outlook Report, Monetary Policy Statement and BOJ Press Conference. Traders expect the BOJ to leave policy unchanged, while warning that it may ease if necessary.

This week, the U.S. Dollar should be impacted mostly by Durable goods with Advance GDP a close second.

Core Durable Goods are expected to come in at 0.2%, better than the previously reported -0.1%. Durable Goods Orders are expected to have risen by 0.7%, an improvement from last month’s -1.6%.

Due to the government shutdown earlier in the year, there are going to be two Durable Goods reports in April. The first one, released on April 2, showed new orders for key U.S.-made capital goods unexpectedly fell in February and shipments were unchanged, but data for January was revised slightly higher.

Advance GDP is expected to come in unchanged at 2.2%. The last report, released on March 28, showed U.S. economic growth cooled by more than initially reported last quarter on revisions to consumer and government spending, signaling mounting challenges to the expansion as it nears a record duration.

Gross Domestic Product grew at a 2.2 percent annualized rate, Commerce Department data showed late last month, less than the initial 2.6 percent reading and projections for a revision of 2.3 percent.

Traders are also likely to be influenced by appetite for risk. The direction of the U.S. equity markets will be largely determined by earnings reports.