USD/JPY Fundamental Forecast – March 23, 2017

The Dollar/Yen inched higher early in the session on Thursday before turning slightly lower. The early strength was likely fueled by short-covering and position-squaring ahead of today’s key economic events. However, gains were limited by concerns over President Trump’s ability to push through key healthcare legislation later today.

At 0846, the USD/JPY was trading 111.129, down 0.029 or -0.03%.

 

The Forex pair has been under tremendous pressure in the week since the Fed said it would gradually raise interest rates while sticking to its plan for at least three rate hikes in 2017. Treasury yields have tumbled because investors had priced in as many as four rate hikes. This has helped diminish the dollar’s appeal as an investment.

In the meantime, stocks have tumbled as investors reduced their exposure to risky assets on worries that Trump will have a hard time accomplishing his major campaign promises including tax reform, relaxed regulations and increased fiscal spending.

The Japanese Yen’s appeal as a safe haven asset could increase later today if Trump and the Republicans fail to repeal Obamacare and pass their own healthcare package. This is because the longer they spend trying to get this new law passed, the greater the delay in accomplishing the other tasks at hand.

Stocks could break further if the healthcare vote fails because this would encourage investors to reduce their bets on Trump’s ability to get any of his policies passed in a timely manner.

In other news, the Japanese Yen was boosted by the news that Prime Minister Shinzo Abe may be facing questions about his ties to a nationalistic school involved in a shady land deal.

While the healthcare vote is expected to take center stage, investors will still have the opportunity to react to U.S. weekly unemployment claims and new home sales. FOMC Members Neel Kashkari and Robert Kaplan are also scheduled to speak. Fed Chair Janet Yellen is also expected to deliver a key speech that could move the markets.

On Wednesday, Dallas Federal Reserve Bank President Robert Kaplan said, “I think we are moving toward a period where we should begin allowing the balance sheet to gradually and patiently run off. But I think we have work to do, probably, to get to that point.”

Essentially, Kaplan was saying that with the U.S. workforce nearly fully employed and inflation heading toward 2 percent, the Federal Reserve should raise interest rates two more times this year and continue to work on a plan to gradually trim its massive balance sheet.

Fed Chair Janet Yellen could move the markets today if she offers some insights for market participants on the pace of future rate hikes.