Fundamental Forecast for Pound: Bearish
USDollar looks like a buy versus the Japanese Yen
These are the key levels to watch on the USDJPY
The Japanese Yen finished the week marginally higher versus the US Dollar, but the fact that it trades near critical resistance (USDJPY at support) leaves it at risk. We’ll watch the coming week’s Bank of Japan interest rate decision with special interest.
We expect little change from the BoJ and indeed the Dollar/Yen exchange rate seems likely to stick to its year-to-date trading range. It’s with that in mind that we believe the US Dollar looks like a buy versus its Japanese counterpart. But what are the risks to that trade?
Markets have long waited for BoJ Governor Kuroda to signal further
monetary policy easing is likely, and continued disappointments have
kept the Yen from falling further versus the Dollar. Kuroda recently
reiterated that the BoJ expects the domestic economy will continue
recovering at a moderate pace and inflation will continue to rise.
The lack of urgency for further policy action will likely keep the JPY
contained, but any hawkish surprises could force a significant USDJPY
decline.
FX derivatives show that 1-week volatility prices on the Dollar/Yen
continue to trade near record lows; if traders fear a hawkish shift
from the Bank of Japan they’re certainly not showing it. There may be
only so long the Japanese Yen can continue to stay below key highs, and
the recent breakdown in the EUR/JPY acts as warning that miniscule price ranges can only last so long.
We remain ready for anything, but at this stage the USD/JPY seems
likely to trade above key year-to-date lows at ¥100.70 through the
foreseeable future.
