USD/JPY Fundamental Weekly Forecast – Rapidly Approaching Resistance Area at 112.985 to 114.492

The direction of the Dollar/Yen last week was primarily driven by the strength in U.S. Treasury yields. The widening of the spread between U.S. Government Bonds and Japanese Government Bonds made the U.S. Dollar a more attractive investment.

The USD/JPY settled the week at 111.980, up 1.157 or 1.04%.

The U.S. Federal Reserve voted last week to keep is benchmark interest rate unchanged at<1.25 percent. It also said it would start reducing its $4.5 trillion balance sheet in October. Finally, the central bank left open the possibility of a third interest rate hike in December.

In other news, the Bank of Japan held monetary settings steady at its policy review meeting last week. It also asked investors to have faith that inflation will eventually hit its 2 percent target.

BOJ Governor Haruhiko Kuroda also downplayed any suggestion of a fresh rift in the board that could further delay any plan by the central bank to dial back its massive stimulus.

Kuroda said he saw nothing wrong with having a dissenter in the board and stressed the BOJ’s resolve to maintain or even ramp up its massive stimulus program.

Forecast

Once again the direction of the USD/JPY will be determined by the movement in U.S. Treasury yields. If they continue to rise then look for the Dollar/Yen to move higher. However, it could encounter resistance at 112.985 to 114.324.

The Forex pair is also approaching a main top at 114.492. Overtaking these levels could trigger an acceleration to the upside. The daily chart indicates there is plenty of room to the upside over this level with 118.658 the next likely target.

Traders should also pay attention to the stock market. The Yen will weaken further if investors decide to take on risk.

Geopolitical concerns over North Korean may bring an end to the U.S. Dollar buying if investors decision to park their money in the safe haven Japanese Yen.

There are no major reports in Japan this week, but Bank of Japan Governor Kuroda is scheduled to speak early Monday at 0535 GMT at an event in Osaka and early Thursday at 0635 GMT at an event in Tokyo.

In the U.S., the major reports included the Conference Board’s Consumer Confidence report, Durable Goods and Final GDP. Fed Chair Janet Yellen is also expected to give a speech at 1645 GMT.

With the Fed leaving open the possibility of a third rate hike in December, each U.S. economic report from now until the end of the year will take on greater importance so investors should watch for volatility with each release.