Currency Analyst since 2010

USD/JPY: outlook for July 11-17

USD/JPY weakened on the back of lower US yields and the fact that investors have pushed back their expectations for the Federal Reserve’s rate hike. The general downtrend is still in place, although the expectations of the Bank of Japan easing policy at the end of this month help the pair to get some support. The BOJ Governor Haruhiko Kuroda said that the central bank will add more easing if needed to achieve its 2% inflation target.

Data from Japan kept getting worse confirming the necessity of additional monetary stimulus: average cash earnings fell by 0.2% declining for the first time since June 2015, while strong yen made the nation’s current account surplus narrow.  

On Sunday there will be elections in the upper house of Japanese parliament. As long as the ruling coalition wins, Abenomics – the policy of stimulus named after Prime Minister Shinzo Abe – will continue. Abe’s win is the consensus forecast. Note, however, that the impact of the election will likely be limited. The market’s attention will be on Brexit, the outlook of US monetary policy and China's economic prospects. Whether Japanese yen will be used as a safe haven currency will largely depend on Chinese statistics due next week, mainly on Wednesday and Friday.   

Mixed, but still solid US Nonfarm Payrolls report adds support to the pair. The key support is at 100.00 ahead of 99.50 and 99.00 (post-Brexit minimum). Above resistance at 101.50 the pair could gain to 102.50 and even 103.50. Note, however, that the longer term bearish trend is still strong and below 99.00 USD/JPY won’t have much of support until 95.00. The question is whether Japanese monetary authorities will allow the pair to come this low.  

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