Fundamental Forecast for the Japanese Yen: Bearish

The Japanese yen weakened approximately 1.6 percent against the U.S. dollar this past week as the greenback rallied against most of its major counterparts amid the positive fundamental developments in the world’s largest economy. At the same time, currency traders sent the USDJPY higher as market participants fled to dollar amid uncertainty in the Euro-Zone and tensions in Egypt.

The Japanese yen tumbled against the dollar this past week as economic conditions in the U.S. show a brightened outlook for the region, while conditions in Japan fail to produce the necessary fundamental drivers to validate a clear turnaround in the Japanese yen. As the calendar in the U.S. is filled with risk sensitive events, currency traders should closely monitor the economic calendar as well as investor sentiment in order to accurately gauge price action in the USDJPY. Developments in the U.S. are worth noting due to the fact that the yen tends to benefit from its safe haven status rather than the developments in the region. The yen is considered a safe haven because its current account surplus reduces Japan’s dependence on borrowing from abroad. It is important to note and attribute the yen’s rally last year to its safe have appeal because as the world’s largest economy stabilizes, the yen is expected to lose ground. With that being said, key economic events to monitor next week will be U.S. advance retail sales, producer prices, the Fed’s minutes of the meeting, and the inflation report. From Japan, economic activity will be released on February 13th, while the Bank of Japan interest rate decision will cross the wires on the 14th. With the BoJ widely expected to leave its key overnight lending rate unchanged at 0.10 percent, economic activity will likely be the key driver for the yen from a purely domestic stand point.

Taking a look at price action, the USDJPY looks poised to continue its northern journey as technical indicators begin to paint a bullish picture. The MACD has crossed over to the upside, while the slow stochastic indicator has yet to reverse course after signing for gains on February 23rd. Meanwhile, price action managed to break above its descending trend line that was intact for a little bit over a month. The next key area of resistance for the dollar will be 85, while support comes in at 82.75.

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