USD/JPY Fundamental Weekly Forecast – Watch for Acceleration to the Upside Over 114.492

After early weakness, the Dollar/Yen recovered to post a strong close for the week. The rally was primarily driven by the usual suspects – rising U.S. Treasury yields, a firmer U.S. Dollar and increased demand for risky assets. The catalyst behind the strength was a series of positive events from the U.S. including the Federal Reserve monetary policy statement, the release of the House of Representatives’ tax reform plan and the appointment of a new Fed chair by President Trump.

The USD/JPY settled at 114.032, up 0.364 or +0.32%.

At the start of the week, the Bank of Japan (BOJ) kept monetary policy steady while roughly maintaining its ambitious price forecasts. It also pointed to signs of growing strength in the economy that board members hope will accelerate inflation towards its elusive 2% target.

The Japanese central bank voted 8 to 1 to keep its short- and long-term interest rates unchanged as it continues to inject huge amounts of cash into the financial sector.

There was one dissenter in the group. Goushi Kataoka voted against the decision to keep policy on hold at his second meeting, reiterating his argument that the central bank wasn’t doing enough to reach its target.

As widely expected, the U.S. Federal Reserve kept the target range for its benchmark rate at 1.00% to 1.25%. The Fed also upgraded its assessment of the economy, stating that “economic activity has been rising at a solid rate despite hurricane-related disruptions.” The Fed also noted that core inflation has remained soft. Lastly, the central bank said that its balance-sheet normalization program was initiated last month and that it’s moving along as expected.

President Trump nominated Fed Governor Jerome Powell to serve as the next chair of the Federal Reserve last Thursday afternoon. He is going to replace current chart Janet Yellen, whose four-year term ends in February 2018.

The U.S. House of Representatives’ tax plan includes lowering the corporate tax rate to 20% and a spattering of tax breaks for individuals.

The Non-Farm Payrolls report showed the economy added 261,000 jobs in October, lower than the expected 313,000 forecast. The unemployment rate fell to 4.1%, its lowest level since 2001. Although the report was under the estimate, the net revision to the previous two months showed an increase of 90,000. Traders also noted that September’s hurricane-influenced report was upwardly revised to an 18,000 gain from a 33,000 decline, a net positive of 51,000. Additionally, average hourly earnings grew 2.4% over the past year, notably lower than the 2.8% gain reported last month.

Forecast

Last week’s upside momentum should carry through this week. Look for traders to make a run at the July 11 top at 114.492. If this move creates enough upside momentum, don’t be surprised by a strong surge since the weekly chart indicates there is no resistance until 118.658.

There are no major reports from Japan or the U.S. this week. However, investors will get the opportunity to react to speeches from BOJ Governor Kuroda and Fed Chair Janet Yellen. Several other Fed members are also on tap to deliver speeches.

Negatives for the market will be a sell-off in the equity markets or any surprise political or geopolitical events.