USD/JPY Fundamental Forecast – January 12, 2017

The Dollar/Yen weakened on Wednesday due to volatility in the U.S. equity markets. Trump’s inability to restore confidence in his ability to execute his economic policies sent investors into the safety of the Japanese Yen and out of the U.S. Dollar.

The USD/JPY finished the session at 115.395, down 0.353 or -30%.

 Forecast

Trump is scheduled to take office on January 20 and investors are starting to worry that his plans to rebuild America through aggressive fiscal spending, tax cuts and relaxed banking regulations may be delayed.

The lack of a plan and the overhang of potential political scandals are making investors nervous and this is leading more investors to move money out of risky assets and into the relatively safer and lower-yielding Japanese Yen.

Late last year, the USD/JPY climbed substantially as investors bet heavily on Trump’s ability to lead the country through economic growth. This helped push the dollar index to a 14-year high. It’s also been nearly a month since the Dollar/Yen reached its recent top at 118.658 on December 15. Since then the market has formed a lower top at 118.601.

Technically, the main trend is down on the daily chart and momentum is starting to build to the downside. If the sell-off through previous support at 115.055 continues to gain traction then we could see a move into 109.919 to 107.856 over the near-term.

In the U.S. on Thursday, investors will get the opportunity to react to the latest data on Weekly Unemployment Claims and the Federal Budget Balance.

However, in light of Mr. Trump’s press conference, the biggest reaction by traders may come from comments by several Fed speakers including FOMC Members Charles Evans and Patrick Harker. Fed Chair Janet Yellen is also scheduled to speak later in the day so her comments are likely to be felt by Asian investors early Friday.

Traders will be looking for a reaction from the Fed members to Trump’s press conference and his inability to produce a plan to accomplish his economic goals. Investors will want to know if this will influence the Fed’s interest rate decision. At this time, investors don’t expect the Fed to raise rates at its late January meeting.

Earlier on Thursday, traders had little response to economic data from Japan. Japanese Bank Lending was up 2.6%, higher than the 2.4% estimate. The Current Account came in at 1.80 Trillion, up from 1.48 Trillion and Economy Watchers Sentiment was 51.4, up from 49.3.