Fundamental Outlook: Bullish

- Japan Announces 15 Trillion Yen in New Stimulus Spending
- Bank of Japan Chief Skeptical About Signs Economy is Rebounding
- Annual Service Demand Shrinks Most in 6 Months on Job Losses

The Japanese Yen is likely to fall in with trends in risky assets in the week ahead as the economic calendar offers little that has already been factored into the exchange rate. While the Yen had temporarily deviated from its usual link with equity markets through the first quarter while traders priced in a deeper-than-expected downturn in the world’s second-largest economy, short-term metrics suggest it is now back in play. Indeed, a 30-day rolling correlation study suggests an -81% inverse relationship between the MSCI World Stock Index and the Yen’s average value against a trade-weighted basket of top currencies. For its part, the MSCI reading now stands squarely at resistance marked by the top of a downward-sloping channel that has contained prices since mid-October. All told, if global equities are indeed positioning to embark on the next leg of the down trend, the Japanese Yen has a good chance of advancing higher.

Turning to the data docket, the March Trade Balance report highlights an uneventful week of minor releases. Expectations call for a seasonally-adjusted -252.2 billion yen monthly shortfall, a sharp swing following a -43.3 billion result in the preceding month. The pattern is a familiar one: dwindling overseas sales have pushed firms to scale back capacity, boosting unemployment and weighing on consumer spending to keep downward pressure on overall growth and sink Japan into the worst economic downturn since the Second World War. Indeed, exports are set to fall -46.6% in the year to March, a reading within a hair of last month’s record-setting -49.4% annual decline. While this surely paints a dire picture, the forces behind the data have been priced into the exchange rate for some months now and, barring a sharp upside surprise, the release is unlikely to have much short-term impact on Yen price action.

Jamie Saettele is a Technical Currency Analyst for FXCM.