Fundamental Outlook for Japanese Yen: Bullish

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- View Our US Dollar – Japanese Yen Exchange Rate Forecast

The Japanese Yen remained effectively unchanged through end-of-week trade, as whippy price action in the US Dow Jones and other global equity indices made for similarly indecisive movements in the USD/JPY. It seemed as though the Yen was almost certainly going to finish the week significantly higher as the S&P 500 posted its worst two-day decline since 1987, but a counterintuitive S&P rally following truly dismal US Non Farm Payrolls data left the Yen almost exactly even with its weekly open. We subsequently forecast that the Japanese Yen is likely to remain within its recent trading range against the US dollar and other currencies for the foreseeable future. Absent a material shift in global risk sentiment, forex traders are unlikely to push the USD/JPY above weekly peaks near 100.50 or below 97.00.

If four major central bank interest rate cuts and a truly dismal US employment report were unable to break the Yen out of its recent channel, it is unclear that anything on the coming week’s economic calendar will be enough to elicit strong reactions from weary forex speculators. Instead, reports of low volume from major trading desks suggest that speculators are unlikely to force major moves in the Yen or other currency pairs. Limited liquidity may make for choppy intraday price action—much as we saw this past week—but few seem willing to test significant support and resistance levels following the amazing volatility seen through previous trade. Our longer-term bias for the Japanese Yen calls for further rallies against the US dollar and other counterparts, but it seems reasonable to believe that markets will consolidate following truly breathtaking Yen gains.

In terms of Japanese economic data, traders may keep an eye out for upcoming Current Account and Eco Watchers survey results. The Japanese economy’s impressive balance of payments surplus will likely be put to the test through the ongoing global economic slowdown; as global demand slows, Japanese exports may suffer. Current forecasts for an impressive 1.4 trillion yen Current Account surplus for the month of September are bullish for the Yen, but noteworthy disappointments could dim outlook for the recently resurgent currency. Otherwise, it may be important to watch results out of subsequent Eco Watchers survey results. Though markets have proven largely indifferent to Japanese economic data through the past several months of trading, incredible Yen strength may once again turn the focus on the relative health of the domestic economy. As such, we will keep an eye out for truly material surprises in these key economic reports.

Antonio Sousa is a Currency Analyst for FXCM.