USD/JPY Fundamental Daily Forecast – Expecting Two-Sided, Low Volume, Low Volatility Trade Today

James Hyerczyk
Japanese Yen
Japanese Yen

Under extremely thin trading conditions, the Dollar/Yen is recovering on Friday after hitting its lowest price since September 18 during Thursday’s low volume session. The price action is insignificant and probably just profit-taking and position-squaring.

At 1025 GMT, the USD/JPY is trading 111.401, up 0.195 or +0.18%.


Investors are continuing to react to concerns about the number of Fed interest rate hikes in 2018. The market has already priced in a December rate hike.

The Federal Reserve’s cautious view on low U.S. inflation is the big story at this time, having replaced U.S. tax reform at least temporarily.

Last Wednesday’s minutes from its November monetary policy meeting showed some Fed policymakers fretted over stubbornly weak inflation. That led investors to question expectations of rate hikes in 2018.

The main concern for Fed members is that the core personal consumption expenditures index has consistently fallen short of the central bank’s 2 percent target over five years, even as the Fed has moved toward normalizing policy.

The concerns may be strong enough to encourage some policymakers to reduce their inflation forecasts for 2018. If this happens then the central bank may cut the number of expected rate hikes from three to two.

Some hedge funds are closing their books for the month, putting additional pressure on the U.S. Dollar. Additionally, safe-haven buying of the Japanese Yen due to market risk aversion because of concerns over weakness in Chinese stocks is also helping to underpin the currency.

We’re looking for a low volume, low volatility two-sided trade today due to the absence of the major players such as hedge funds, banks and institutions.

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