Fundamental Outlook for Japanese Yen: Bullish

- Japanese Yen Forecast to recover versus US Dollar
- Holiday-shortened trading week benefits Yen
- Japanese Yen Monthly Outlook points to potential for recovery

The Japanese Yen finished the week almost exactly unchanged against the US Dollar despite a sharp recovery in risky asset classes. Yen speculators kept the currency stable in spite of a sizeable S&P 500 rally—the key US equity index now trades at its highest levels in two months. There seems to be a general air of complacency surrounding risky assets, and early signs of hope in macroeconomic data and financial earnings reports have emboldened traders buy into risk-sensitive markets. Yet the sheer pace of financial market recovery suggests that recent developments are far from sustainable. The Japanese Yen would likely benefit if risk sentiment sours through near-term trade.

The US S&P 500 has now rallied over 25 percent off of its March lows at a massive 1000+ percent annualized pace. Early financial earnings reports have led downtrodden bank stocks sharply higher, but assets can only maintain such an incredible pace of appreciation for so long. The Japanese Yen subsequently stands to benefit when and if risky assets turn lower through the near term. Given that the USD/JPY likewise trades at key medium-term resistance near the 101.00 mark, overall risk-reward favors going long the Yen against its US counterpart (short the USD/JPY).

Japanese economic developments have had relatively little effect on USD/JPY price action, and we expect the week ahead to be no different. We will instead watch key economic reports out of the US economy and subsequent implications for risky asset classes. Any surprises out of US Advance Retail Sales and a Consumer Price Index report could potentially shake confidence across financial markets. We will keep a close eye on US Data, and a reversal in the S&P 500 will give signal that the USD/JPY may finally reverse after several months of appreciation.

Jamie Saettele is a Technical Currency Analyst for FXCM.