USD/JPY Fundamental Weekly Forecast – Fed Stimulus Hopes Likely to Limit Gains

The Dollar/Yen closed higher last week with most of the upside action fueled by the news that a U.S. agency told President-elect Joe Biden that he can formally begin transition into the office of the president. The news encouraged investors to pitch their protective positions in the safe-haven Japanese Yen.

Last week, the USD/JPY settled at 104.114, up 0.277 or +0.27%.

The U.S. federal agency that must sign off on the presidential transition told President-elect Joe Biden on November 23 that he can formally begin the hand-over process.

“I take this role seriously and, because of recent developments involving legal challenges and certifications of election, am transmitting this letter today to make those resources and services available to you,” General Services Administration chief Emily Murphy wrote in a letter to Biden.

U.S. President Donald Trump wrote on Twitter that he was recommending that Murphy and her team “do what needs to be done with regard to initial protocols, and have told my team to do the same.”

The Dollar/Yen was also underpinned as Wall Street’s main indexes rose and the tech-heavy NASDAQ hit a record high as optimism around an economic rebound next year outweighed fears of an expected surge in coronavirus infections following the Thanksgiving holiday.

Hopes of more stimulus, signs of progress in developing COVID-19 vaccines and encouraging economic data helped lift the three main U.S. stock indexes by more than 10% in this month and set the S&P 500 on course for its best November ever, dampening the appeal of the safe-haven Japanese Yen.

Weekly Forecast

All eyes will be on the monthly employment report on December 4, with economists polled by Reuters expecting unemployment to dip to 6.8% from 6.9%, but to remain above the 4.5% rate in March, before much of the U.S. economy went into lockdown.

A weak report is likely to put pressure on Congress to pass a new stimulus bill, but that next package is now expected only after Biden is sworn in on January 20.

Traders expect the jobs report to reinforce expectations of a setback in the U.S. recovery as several states instituted shutdowns to prevent the spread of the virus. This is leading to speculation that the Fed may increase its government bond purchases or adjust the maturity of bonds purchased.

The Fed minutes released last Wednesday confirmed that policymakers in November discussed how the central bank’s asset purchases could be modified to maximize support for the economy.

Additional monetary stimulus is likely to limit the gains in the USD/JPY.

For a look at all of today’s economic events, check out our economic calendar.