Fundamental Forecast for Japanese Yen: Neutral

- Japan Retail Sales Expand the Most in Four Years
- Japanese Jobless Rate Holds Steady in February
- Tankan Survey Shows Firms Expect to Cut Spending for Third Year

The Japanese yen weakened across the board, with the USD/JPY advancing to a fresh yearly high of 94.68, but the low-yielding currency looks due for a corrective retracement as it remains oversold against its major counterparts. However, as risk trends continue to dictate price action in the currency market, a rise in risk appetite is likely to push the yen lower as it remains the most popular funding-currency, next to the greenback.

Meanwhile, a Bloomberg News survey shows all of the 21 economists polled forecast the Bank of Japan to hold the benchmark interest rate at 0.10% next Wednesday as policy makers aim to balance the risks for the economy, while market rumors emerged earlier this week that the board may drop its highly dovish outlook for future policy, given the rebound in global trade. Market participants expect the BoJ to raise its growth forecast in April as the recent developments encourage prospects for an export-led recovery, and the central bank may adopt a wait-and-see approach going into the second-half of the year as the rebound in economic activity gathers momentum. However, board member Hidetoshi Kamezaki said that the “central bank will implement policy proactively if necessary” and vowed to keep an “extremely accommodative” stance during a speech in the city of Kochi, but went onto say that “the economy is performing somewhat better than expected” even as he anticipates it to take some time for Japan to “return to a self-sustaining recovery path.”

Nevertheless, Japan’s leading index is anticipated to improve for the twelfth month in February, with economists forecasting the gauge to rise to 97.8 from, 96.7 in the previous month, which would be the highest reading since July 2007, while machine orders are projected to increase 3.7% in February following the 3.7% contraction in the month prior. Moreover, the trade surplus is expected to widen to JPY 762.8B during the same period from JPY 197.2B in January as trade conditions improve, and the data is likely to stoke an enhanced outlook for the region as the expansion in monetary and fiscal policy continues to feed through the real economy.

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