USD/JPY Fundamental Forecast – March 20, 2017

The Dollar/Yen fell to its lowest level since February 28 on Friday, continuing to feel pressure for a third straight session after the U.S. Federal Reserve suppressed hopes for further upside action in the Forex pair by keeping a gradual pace to its monetary policy tightening policy.

The USD/JPY closed the session at 112.616, down 0.744 or -0.66%.

In economic news, U.S. manufacturing output rose for a sixth straight month in February and preliminary consumer confidence for the month of March also increased.

Forecast

The USD/JPY’s close below the key retracement zones at 113.590 to 113.139 and 113.267 to 112.869 is proof that the current sell-off is more than a correction. If the downside momentum continues then we could see a near-term test of a pair of short-term bottoms at 111.679 and 111.583.

Some traders say that last week’s Bank of Japan monetary policy statement is potentially bullish for the USD/JPY, but it looks like the price action on Monday is likely to be determined by the G20 decisions from over the weekend.

Going into the meeting, traders felt that any hints of a broader push by Washington against an appreciating dollar are likely to weaken the Dollar/Yen.

However, investors also felt that a softening of the joint draft statement’s language on trade, removing a rejection of protectionism, speaks to a promised rise in U.S. tariff barriers which has so far largely been seen as dollar positive.

The USD/JPY is expected to feel downside pressure on Monday after finance ministers from twenty of the world’s biggest economies warned against competitive devaluations and disorderly FX markets, but failed to agree on keeping global trade free and open.

At the meeting, U.S. Treasury Mnuchin preferred to “reduce excessive global imbalances…promote greater inclusiveness and fairness.”

Former Morgan Stanley Asia Chairman Stephen Roach said Monday that the G-20 financial leaders’ dropping their traditionally strong support of free trade was “disturbing” and reflected rising protectionism in the U.S.

“It’s pretty disappointing when you get finance ministers from leading countries in the world who, out of the blue, are unable to validate the commitment to anti-protectionism which is the underpinning globalization,” Roach said.

“That’s an obvious reflection of the shifts in the political winds in the United States and indicative of a U.S. economy that is backing away from multilateralism,” Roach said. “It was a disturbing meeting.”