USD/JPY Fundamental Weekly Forecast – Fed Chair Powell Speech Drives Risk Sentiment This Week

This week, the Dollar/Yen is expected to be influenced mostly by risk sentiment. The catalysts behind this is likely to be the U.S. consumer inflation report on Tuesday, a speech by Federal Reserve Chairman Jerome Powell on Wednesday and Friday’s U.S. Retail Sales report on Friday. There are no major economic releases out of Japan scheduled.

Last week, the USD/JPY settled at 106.692, down 0.219 or -0.20%.

Economists expect the U.S. consumer inflation report for April to show its smallest annual gain in nearly five years.

The Labor Department’s consumer price index (CPI) is projected to show an annual loss of 0.7% for April. Consumer prices fell 0.4% from February to March, the largest drop in five years, reflecting the downward pressure that the coronavirus pandemic is exerting on the cost of gasoline, airfares, hotel rooms and other goods and services. Core CPI is expected to come in at -0.2%. Last month it fell 0.1%.

Retail sales plunged 8.7% in March. With more than 60% of U.S. retailers temporarily shuttered since March by government ordered shutdowns, economists expect the slide accelerated since then. They predict retail sales sank 11% in April. Core Retail Sales are expected to come in at -8.0%. In March, the report showed a 4.5% decline.

With earnings season winding down and economies in several states reopening, investors are going to be looking for a new catalyst to drive the price action in the stock market. With that in mind, there will be added emphasis on Powell.

Powell speaks via webcast hosted by the Peterson Institute for International Economics at 13:00 GMT. He is expected to speak about the current issues facing the U.S. economy.

In Japan, early in the week, investors will get the opportunity to react to the Bank of Japan’s Summary of Opinions. Traders expect the report to show that policymakers were looking to take stronger steps to prevent the coronavirus triggering an economic slump as bad as the Great Depression.

Weekly Forecast

Reports from over the weekend signal Japan may spend more money to combat the economic fallout from the coronavirus pandemic. This is likely to be bearish for the Japanese Yen because it will mean more money will be sent into the economy.

Reuters is reporting that Japan will take additional stimulus measures “swiftly” to combat the fallout from the coronavirus pandemic, Prime Minister Shinzo Abe said, signaling readiness to compile a second supplementary budget during the current Diet session running through June.

The new package of steps would aim to cushion the blow to the world’s third-largest economy, which is on the cusp of deep recession amid a plunge in global demand and a local state of emergency that has been extended through to the end of May.