In spite of discouraging Japanese data, the Yen exchange rates continued to advance strongly across the board, making solid gains against the bearish US Dollar. As foreign currency markets predict another trend lower in the USD to JPY Exchange Rate, what do leading forecasters see in the short, medium and long-term outlook?
The US Dollar stands to make sizable advances against the Yen this week, due to limited Japanese input.
With the coming of Constitutional Memorial Day today, Greenery Day tomorrow and Children’s Day on Thursday, Japan’s economic output has been severely limited.
This has presented an opportunity for the USD/JPY exchange rate to rise, particularly if tomorrow’s trade balance shows a healthy deficit reduction.
The foreign currency markets are in two minds as to the future policy actions of the Bank of Japan (BoJ), although Governor Haruhiko Kuroda provided some clarity during Monday’s European session after warning that the Japanese Yen exchange rate complex was too strong.
With Japanese markets closed until Friday, it could be the end of the week before the Yen truly reacts to the Governor’s comments that the BoJ will not hesitate to further loosen monetary stimulus if they deem it necessary to hitting their inflation target.
FX investors continued to pour back into the Japanese Yen exchange rate complex (JPY) after the Bank of Japan’s (BoJ) decision not to enact further monetary stimulus at its April policy meeting
Latest Dollar/Yen Exchange Rates
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US Data Sends USD to JPY Rate Tumbling
Disappointing US GDP data substantially reduced the appeal of the US Dollar exchange rates, as annual growth was found to have slowed from 1.4% to 0.5% in the first quarter of 2016 questions were naturally raised as to the robustness of the economy.
As the Fed’s preferred measure of inflation also slowed in March there was little to deter the USD/JPY spot rate from further losses on Friday, as researchers at BBH noted:
‘Japanese markets were closed today, but the yen's strength has continued. The dollar traded below JPY107 for the first time since October 2014. The JPY106.60 area may be the next technical target. The market may draw more cautious if the JPY105 level is approached as some observers tout intervention there, though we suspect that such claims mistakenly see BOJ action (that would be ordered by the MOF) as defending a fixed level.’
Later in the week the Japanese Services and Composite PMIs could give Yen investors pause providing the figures are sufficiently bearish, although given recent trends markets could well continue to ignore negative ecostats.
US Dollar (USD) Exchange Rates Forecast to Weaken on Disappointing Manufacturing Data
The appeal of the US Dollar could pick up if the April ISM Manufacturing and Non-Manufacturing Indexes demonstrate a reassuring uptick in economic activity.
However, should the world’s largest economy continue to show signs of succumbing to mounting global slowdown pressures then the ‘Greenback’ may cede further ground to rivals.
Given the particularly disappointing nature of the recent Chicago Purchasing Manager Index, which slumped markedly from 53.6 to just 50.4 in April, the signs are not overly positive for the US manufacturing sector.
Will USD/JPY Conversion Rate Recover on Robust Non-Farm Payrolls?
Markets will also be particularly interested in the latest Non-Farm Payrolls report due on Friday, given the high level of importance that the Fed typically places on the measure of the domestic jobs market.
While forecasts point towards a slight dip in the headline figure any relatively robust level of job creation is likely to offer some measure of support to the softened US Dollar, even if the odds of a June rate hike remain limited.
Should employment fail to rise strongly or wage growth demonstrate signs of weakness, however, the USD/JPY exchange rate is expected to maintain its recent downside bias.
Today's Foreign Exchange Forecasts for the Dollar-Yen Pair
According to John J Hardy, head of forex strategy at Saxo Bank:
"There is very likely to be a yen spike lower and then a very dramatic reversal centred around what the Bank of Japan may do in the coming months".
Citibank analysts see a limited USD/JPY downside in their short-term forecast:
"Possible announcement of the economic stimulus package in Japan may constrain downside on USD/JPY."
"On Technical analysis(Chart), USD/JPY downside may be limited to 105.23-106.56 (Oct 15 2014 low, fibo 0.382), and may range trade between 105.23-111.74 (55MA)."
ABN AMRO have revised their 2016 year end forecast from 115 to 110:
"...the hurdle rate for further monetary stimulus in the coming months seems to be higher. As a result, we now expect the JPY to strengthen to around 105 in the second quarter of this year."
"Ahead of the G7 summit on 26-27 May, the Ministry of Finance is unlikely to intervene in the currency market to weaken the JPY unless volatility in the currency market is extreme or one sided."
"Nevertheless, the risk of currency intervention will increase if USD/JPY declines closer to 100."
"Given our view that the BoJ is still likely to step up their monetary stimulus in the second half of this year, a weaker JPY towards 110 at the end of this year is still envisaged."
On Wednesday the Japanese Yen to British Pound exchange rate (JPY/GBP) converts at The pound conversion rate (against japanese yen) is quoted at 192.221 JPY/GBP.
At time of writing the pound to pound exchange rate is quoted at 1.
At time of writing the pound to swiss franc exchange rate is quoted at 1.134.