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USD/JPY Fundamental Weekly Forecast – Traders Should Zero In on Bank of Japan Releases This Holiday-Shortened Week

James Hyerczyk

The Dollar/Yen had an up and down week before settling slightly better. The mostly sideways price action indicates investor indecision and impending volatility. While prices remained just slightly under the May 30 top at 109.930, buyers were scarce which may be related to light pre-holiday volume or position-squaring ahead of the new year.

Last week, the USD/JPY settled at 109.456, up 0.102 or +0.09%.

The Dollar/Yen was also underpinned by rising U.S. Treasury yields, which widened the spread between U.S. Government bonds and Japanese Government bonds. This helped make the U.S. Dollar a more attractive asset. Stronger demand for risky assets also supported the Forex pair.

Better-than-expected U.S. economic data also helped support the U.S. Dollar. Flash Manufacturing PMI matched expectations. Building Permits and Housing starts beat expectations. Industrial Production also came in higher than expected. The news reduced the chances of a Fed rate cut in 2020.

In Japan, Flash Manufacturing PMI came in as expected. Tertiary Industry Activity fell more than estimated. National Core CPI met expectations with at 0.5% reading.

The Bank of Japan kept monetary policy steady and maintained its upbeat assessment of the economy, suggesting that no imminent expansion of stimulus was forthcoming despite lingering overseas risks that weigh on a fragile recovery.

As expected, the BOJ maintained its short-term interest rate target at -0.1% and a pledge to guide 10-year government bonds yields around 0%, by a 7-2 vote.

Weekly Forecast

With most of the world celebrating the Christmas holiday on December 24 and December 25, trading conditions are expected to be extremely thin. This often leads to a mostly rangebound trader since the bigger players will be on the sidelines. Furthermore, there aren’t expected to be any major releases that could drive the price action.

Thin trading conditions could attract the occasional rogue trader, which means we could see spikes in either direction so be careful chasing the market higher or lower in either direction on low volume since it will be very easy to get caught in a bull or bear trap.

In the U.S., economic data will be limited to Durable Goods and the Treasury Currency report on Monday.

There’s a full slate of economic data from Japan, but most of it is on the minor side. Of keen interest for traders will be the Bank of Japan Monetary Policy Meeting Minutes on December 24, a speech by BOJ Governor Kuroda on December 26, and the BOJ Summary of Opinions on December 27.

This article was originally posted on FX Empire