Yahoo Finance USD/JPY Fundamental Daily Forecast – Price Action Suggests Dollar/Yen Correlation is Falling
The Dollar/Yen is struggling to stay positive on Monday even after Fed Chair Janet Yellen’s hawkish comments on Sunday.
At 1027 GMT, the USD/JPY is trading 111.851, up 0.017 or +0.02%.
Earlier in the session, the Forex pair extended its losses for a sixth day since hitting a multi-month high at 113.433 on October 6.
Yellen said on Sunday the U.S. economy remains strong and the strength of the labor market calls for continued gradual increases in interest rates despite subdued inflation.
Speaking at an international banking seminar, Yellen acknowledged that the persistence of undesirably low inflation this year has been a surprise. But she said she expected to start picking up as the effects of temporary factors, such as falling prices for consumer cellphone service, begin to fade.
“Economic activity in the United States has been growing moderately so far this year, and the labor market has continued to strengthen,” Yellen said.
Nice comments from the Chair as she continued her push toward a third rate hike this year by the Fed. However, investors reacted as if her hawkish agenda has already been priced into the market.
There is no question that investors are buying the Japanese Yen for reasons other than what we’ve been accustomed to seeing – flight-to-safety, lower demand for higher risk – for example.
Last week, the USD/JPY was under pressure after a survey published by the Nikkei business daily showed that Japanese Prime Minister Shinzo Abe’s ruling bloc could come close to keeping its two-thirds “super” majority in an October 22 lower house election.
The Nikkei poll suggested that Abe could solidify his grip on power, defying some predictions that the ruling bloc may suffer substantial losses in the election.
A win by Abe will likely mean a continuation of Abe’s reflationary economic policies. A continuation of the Bank of Japan’s quantitative easing will over time, keep the Yen on balance weak and so it supports the Dollar/Yen.
Forecast
Today’s price action suggests bullish investors are trying to keep the rally alive by defending a key area at 111.749, just slightly above the last main bottom at 111.463.
Earlier today, Bank of Japan Governor Haruhiko Kuroda said “Achieving the two percent price stability target is still a long way off and the Bank of Japan will persistently pursue aggressive monetary easing.”
If the USD/JPY is going to turn around today then the move will likely be triggered by a jump in U.S. Treasury yields.
On tap in the U.S. on Monday are the Empire State Manufacturing Index. It is expected to come in at 20.3. The Federal Budget Balance is also expected to come in at -1.0 billion.
Finally, traders are saying that the Dollar/Yen’s correlation has fallen with the Fed’s rate hike expectations for this year since late September, suggesting the market is more focused on the Fed’s longer-term policy outlook.
This article was originally posted on FX Empire
