Fundamental Outlook for Japanese Yen: Bullish

- Japanese Employment and Consumer Spending data continue to disappoint
- Bank of Japan looks beyond interest rates to boost economy
- DailyFX+ Forex Trading Strategies aggressively bought Yen

An empty week of economic data left the Japanese Yen to trade purely off of shifts in risk sentiment, and a downturn in risky asset classes pushed the currency higher against the US dollar and other major counterparts. Indeed, the USD/JPY lost almost all of its recent gains, and Japanese Yen momentum continues to favor USD/JPY weakness. A shift in sentiment led our DailyFX+ trading signals to buy the Yen aggressively through end-of-week trade, and the move proved prescient ahead of Friday’s substantive tumbles in Japanese Yen crosses.

Outlook for the highly risk-sensitive Japanese Yen will subsequently depend on the trajectory in global risky asset classes, and overall momentum favors further losses. An absolutely dismal US Non Farm Payrolls report on Friday reminded traders of the severity of ongoing economic difficulties in the world’s largest economy, and few express hopes that conditions will post significant improvement through the foreseeable future. As such, we would argue that “de-leveraging” trades, or assets that benefit from underperformance in equity markets, are likely to continue to gain. Disappointing outlook for Japanese economic conditions notwithstanding, the Japanese Yen will likely benefit from these dynamics.

Analysts predict that upcoming Japanese data will show further deterioration in Japan’s economic fundamentals, but few expect such developments to hinder the Japanese Yen in the face of similarly poor conditions in major global economies. We will continue to focus on broader financial market sentiment—especially as it relates to trends in currency markets. Watch for sudden moves in the US S&P 500 and the Japanese Nikkei 225, as these will likely dictate USD/JPY price action through the foreseeable future.

David Rodriguez is a Currency Analyst at FXCM.