Yahoo Finance USD/JPY Fundamental Weekly Forecast – White House Turmoil, Fed Economic Projections Key Market Drivers
The Dollar/Yen was pressured last week by political uncertainty in U.S. President Donald Trump’s cabinet and renewed worries about trade wars.
The USD/JPY settled at 105.952, down 0.851 or -0.80%.
Traders are concerned about a U.S. shift towards increased protectionism under the Trump administration, after the president sought to impose fresh tariffs on China.
The Yen was also supported by a political scandal in Japan which raised questions about the future of Prime Minister Shinzo Abe, leading investors to question the path of the currency. Abe risks losing both popularity and ultimately power. And without Abe, there might not be “Abenomics” to keep the Yen cheap.
Only a week after Trump’s top economic adviser Gary Cohen resigned after clashing with the President over proposed tariffs on steel and aluminum, Trump fired Secretary of State Rex Tillerson. This news raised issues about the instability of the White House while reinforcing uncertainty about Trump’s future policy moves, especially on trade.
Late in the week, Dollar/Yen investors were rattled by a Washington Post report stating that Trump was planning to impose a 60 percent tariff on imports from China.
In economic news, Japan core machinery orders for January rose 8.2 percent on month and 2.9 percent on year, beating forecasts.
Meanwhile, Bank of Japan policymakers thought it was appropriate for the central bank to “persistently pursue powerful monetary easing.” Some members said it was important to monitor side effects of current policy, according to minutes of the BOJ’s January meeting.
In the U.S., consumer inflation came in at 0.2%, meeting expectations but coming in well below the previous 0.5%. Core CPI also matched the 0.2% forecast, but came in below the previously reported 0.3%. The benign numbers probably mean the Fed will limit the number of rate hikes in 2018 to three.
Core Retail Sales disappointed investors with a 0.2% reading. The forecast called for an increase of 0.4%. The previous month was revised higher to 0.1%. Retail Sales were down 0.1%. Traders were looking for 0.3%. The previous month was revised higher to -0.1%.
Producer inflation rose 0.2%, exceeding expectations. Building permits were 1.30M versus a 1.32M forecast.
Forecast
The major market driving events this week will be the Federal Open Market Committee’s (FOMC) Economic Projections, FOMC Statement, Federal Funds Rate decision and FOMC Press Conference.
Traders in the Fed fund futures market are betting on a rate hike at the Fed’s meeting on March 21. This has already been priced into the market. Therefore, the key news that will move the USD/USD will be whether the FOMC members forecast two or three more rate hikes this year.
Only one more rate hike should be bearish for the Dollar/Yen while three more rate hikes should be bullish for the Forex pair. Two more rate hikes is what is expected, bringing a total of three by the end of the year.
Investors will also continue to monitor the turmoil in the White House and a possible announcement of tariffs against China. These events have the potential to create volatility which could drive up demand for the safe haven Japanese Yen.
This article was originally posted on FX Empire
