USD/JPY Fundamental Analysis – Forecast for the Week of January 16, 2017

Increased demand for lower-yielding assets helped weaken the Dollar/Yen last week. Weaker U.S. Treasury yields and mixed equity markets encouraged investors to move money into the lower-yielding Japanese Yen.

The USD/JPY closed at 114.453, down 2.487 or -2.13%.

The USD/JPY traded down to its lowest level since December 7 last week amid economic and political uncertainty that boosted its safe-haven appeal.

The biggest down move for the week and the most one-day volatility occurred on January 11 during a press conference held by President-elect Donald Trump. Investors sold off stocks and other higher risk assets as Trump created uncertainty due to his refusal to address key economic issues such as increased fiscal spending, tax cuts and relaxed banking regulations.

There were no major economic reports from Japan last week. The major U.S. reports were retail sales and the Producer Price Index. Core Retail Sales disappointed by coming in at 0.2%, under the 0.5% estimate. The PPI report surprised with a 0.3% increase versus a 0.1% estimate. Several Fed members also spoke, showing support for the Fed’s expectations of higher inflation in 2017.

Forecast

There are no major reports from Japan this week. Key U.S. reports include data on consumer inflation, building permits and Philly Fed manufacturing. Fed Chair Janet Yellen is also scheduled to speak twice.

Donald Trump will be inaugurated as President of the United States on January 20. Traders will be listening to his inauguration speech for clues that may reveal more details of his plans to stimulate the economy through aggressive fiscal spending.

Just as he triggered wild swings in the markets last week when he failed to reveal any concrete about his policy plans, he can easily turn the USD/JPY bullish again by saying he has a plan and that it will be revealed shortly.

This week’s price action will continue to be dominated by investor sentiment. Look for a bullish move by the USD/JPY if it’s a “risk on” week and a bearish move if investors decide it will be a “risk off” week. Although there are economic reports, most of the price action will be dictated by what Trump says or doesn’t say at his inauguration.