USD/JPY Fundamental Analysis – Forecast for the Week of April 24, 2017

The Dollar/Yen closed higher last week, boosted by rising U.S. Treasury yields and increased demand for higher-yielding assets. Demand for the Yen fell on diminished concerns over the French presidential elections.

The USD/JPY finished the week at 109.030, up 0.424 or +0.39%.

The Japanese Yen was supported early in the week on flight-to-safety buying caused by concerns over Syria and North Korea. While the news about Syria may have cycled out, worries about a possible military conflict in North Korea helped underpin the market.

On April 17, the USD/JPY reached its low for the week, producing a potentially bullish closing price reversal bottom on the daily chart, suggesting the market had become technically oversold and had run out of sellers. Additionally, technical traders started to book profits as buyers came in to defend a major retracement level at 107.856.

The U.S. Dollar was boosted by a rise in the 10-year Treasury yields. Treasury yields rose as well as demand for higher-yielding assets like stocks after U.S. Treasury Secretary Mnuchin said the Trump Administration is close to bringing forward “major tax reform.” On Friday, President Donald Trump promised to make an announcement about much anticipated tax reform next week, but it was not immediately clear how much he would reveal or what form it would take.

“We’ll be having a big announcement on Wednesday having to do with tax reform. The process has begun long ago but it really formally begins on Wednesday,” Trump said at the Treasury Department on Friday.

A USD/JPY rally started in November 2016 on optimism about the Trump administration’s pro-growth policy changes. Recently, the price action in the market appeared to indicate that investors were becoming less convinced the new president can push through desired changes.

The direction of the markets this week may be determined by whether Trump delivers the goods on Wednesday.

Forecast

According to early trading on Sunday, the Japanese Yen is expected to open about 1 percent lower against the U.S. Dollar. This is because early projections indicated that centrist Emmanuel Macron and far-right Marine Le Pen had made it to the second round of the French presidential election.

The markets had been worried that the far-left, eurosceptic Jean-Luc Melenchon, who had surged in the polls in recent weeks, could jump ahead of Macron to make it into the final runoff against Le Pen, giving voters a choice between two radical candidates who would threaten the future of the European Union.

The news also caused the Euro to jump to its highest level since mid-November.

In other news this week, the U.S. will release reports on Conference Board Consumer Confidence, Core Durable Goods Orders, Weekly Unemployment Claims and Advance GDP.

On Wednesday, the Trump Administration is expected to finally release its long awaited tax reform plan. Also look for a debate in Congress on healthcare reform and a possible government shutdown if Congress doesn’t increase the debt ceiling by midnight Friday.

In Japan, the Bank of Japan will release its latest monetary policy statement. Additionally, the BOJ will release its Outlook Report, its latest Policy Rate decision and the BOJ will hold a press conference.

Generally speaking, increased demand for higher risk assets will be supportive for the USD/JPY all week. The Forex pair could get bullish if buyers can overcome and sustain a rally over 109.919.