Japanese Yen May Weaken On Greece Resolution, Positive NFP’s

Fundamental Forecast for Japanese Yen: Neutral

- Bank of Japan leaves benchmark rate unchanged at 0.10%
- Consumer prices remain unchanged at -1.1% in March
- Retail trade unexpectedly rose by 0.8% beating estimates for a 0.6% decline.

The Japanese Yen ended the past week virtually flat as credit rating issues in Europe were offset by strong corporate earnings and continued signs that the global recovery is strengthening. The Greek aid package continues to be ironed out with European leaders hinting at a conclusion in the near future. Therefore, the news cycle from the region should continue to impact broader trends as was the case the past week when the S&P downgrades of Greece, Portugal and Spain sparked a bout of widespread risk aversion. The FOMC pledging to keep rates low for an “extended period” raised the outlook for earnings during a week where several blue chip names posted strong quarterly results.

The BoJ left their benchmark rate unchanged at 0.10% which was widely expected as deflation remains a concern. Indeed, consumer prices fell by 1.1% in March maintaining the pace from the month prior at a time when other countries are seeing inflation reach target levels. The central bank refrained from adding to their special monetary stimulus efforts, but is considering new efforts to boost the economy. The Bank of Japan said in its policy statement that it was looking into other "possible ways to support private financial institutions in terms of fund provisioning with a view to strengthening the foundations for economic growth." However, policy makers did alter their forecast for inflation and no expect core price to rise to 0.1% in 2011 versus a previous forecast of -0.2%. An unexpected jump in retail trade and continued growth in industrial production were encouraging signs that the economic recovery is on track.

Domestic fundamentals rarely have an impact on the currency’s price action, which was the case last week in spite of several major releases. Therefore, with a relatively empty calendar it would be more prudent for traders to monitor the credit rating story in Europe and U.S. fundamentals which include the potentially broadly market moving non-farm payroll report. The U.S. economy is forecasted to have added another 189,000 jobs in April building upon the 162,000 added the month prior, the consecutive monthly gain would be the first since the end of 2007. A bullish labor report could send the USD/JPY above resistance at 94.70-38.2% Fibo of 110.70-84.82 where it has failed twice before. If that is the case then it would exposes upside potential to 97.75-50.0% Fibo and 8/7/09 high. Conversely, signs that the Greece’s troubles are spreading and a disappointing labor report could be a recipe for broad based risk aversion, which could generate yen support.

DailyFX provides forex news on the economic reports and political events that influence the forex market.