USD/JPY Fundamental Weekly Forecast – Hawkish Fed, Dovish BOJ Could Sink Japanese Yen

The Dollar/Yen could rise sharply after the Fed announcements if central bankers come across as hawkish, leading to the reduction in the chances of another Fed rate cut before the end of the year.
James Hyerczyk
USD/JPY

The Dollar/Yen reached its highest level since August 1 last week as investors continued to shed the safe-haven Japanese Yen in reaction to an easing of tensions between the United States and China, an improving U.S. economy and speculation that the Bank of Japan may follow the lead of the European Central Bank and once again cut its benchmark interest rate.

Last week, the USD/JPY settled at 108.089, up 1.175 or +1.10%.

Throughout the summer, the Japanese Yen was driven higher by plunging Treasury yields as speculators increased bets on a U.S. recession due to escalating trade tensions between the United States and China. The selling was strong enough to invert the yields of the 2-year and 10-year Treasury notes, a sign used by many to forecast a future recession.

An easing of tensions between the U.S. and China following the announcement of renewed trade talks has caused investors to rethink the risk of recession. This has encouraged long bond investors to book profits, driving interest rates higher in the process. Higher U.S. rates helped widen the spread between U.S. Government bonds and Japanese Government bonds. This helped make the U.S. Dollar attractive to investors.

Weekly Forecast

The USD/JPY is currently being guided higher by rising global interest rates and stock markets. It should continue to do so this week if these two major influences continue to trend higher.

On Wednesday, investors will get the chance to react to the latest Federal Reserve interest rate and monetary policy decisions. The market has already priced in a 25-basis point rate cut. However, weeks ago, it was also pricing in a third rate cut this year in December. Since then the economy has shown improvement and U.S.-China trade relations have improved, reducing the odds for a third rate cut.

The Dollar/Yen could rise sharply after the Fed announcements if central bankers come across as hawkish, leading to the reduction in the chances of another Fed rate cut before the end of the year.

Traders will also be watching the Bank of Japan’s decisions. The BOJ could cut rates but it doesn’t have much room to do so.

In late July, the BOJ held off on expanding stimulus, but committed to doing so “without hesitation” if a global slowdown jeopardizes the country’s economic recovery.

BOJ Governor Haruhiko Kuroda said the central bank strengthened its commitment to act pre-emptively against risks to the economy, as protectionist policies and trade tensions were delaying an expected rebound in global growth.

“I don’t think Japan has lost momentum to hit the BOJ’s price goal, or that there is an imminent risk of this happening,” Kuroda told a news conference.

“But overseas are heightening. If this is prolonged, that could increase risks for Japan and threaten the economy’s momentum to hit our price goal. If this happens, we will ease policy without hesitation.”

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

Top Promotions

Top Brokers

IMPORTANT DISCLAIMERS
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.
RISK DISCLAIMER
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.
FOLLOW US