USD/JPY Fundamental Analysis – Forecast for the week of September 19, 2016

The USD/JPY closed the week at 102.28 dead center of its trading range as traders are focused on the Bank of Japan meeting as bank members leave markets completely uncertain. The pair is a strong sell this week with the two banks expected to do the exact opposites. The yen was down 0.4% on the week and the pair is down 15% on a year to date basis.

The Japanese yen is up 0.2%, outperforming the G10 in an environment of broad-based USD strength, its gains driven by the broader tone of risk aversion with additional upside risk into the NA open. JPY’s risk profile leaves it vulnerable to knee-jerk rallies in periods of risk aversion, strengthening on the back of safe-haven flows. Measures of sentiment are mixed across time horizons as shorter-term measures reflect concerns surrounding the BoJ atypically pricing a slight premium for protection against JPY weakness as longer-term measures suggest a rise in demand for protection against JPY strength. Markets continue to highlight the risk of a disappointment and note the broadening narrative of discord among policymakers at the BoJ. JPY’s vulnerability thus lies to the upside as we consider the growing risk of a BoJ disappointment, with added support from the broader tone of risk aversion.

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This Week’s Economic Events That You Should Be Monitoring:

Date Country Name Volatility Previous
9/20/2016 AUD RBA Meeting’s Minutes 3
9/20/2016 CAD BoC Governor Poloz 3
9/21/2016 AUD Mid-Year Economic Outlook 3
9/21/2016 JPY BoJ Interest Rate Decision 3 -0.1
9/21/2016 JPY BoJ Monetary Policy Statement 3
9/21/2016 JPY BoJ Press Conference 3
9/21/2016 USD FOMC Economic Projections 3
9/21/2016 USD Fed’s Monetary Policy Statement 3
9/21/2016 USD Fed Interest Rate Decision 3 0.5
9/21/2016 USD FOMC Press conference 3
9/21/2016 NZD RBNZ Interest Rate Decision 3 2
9/22/2016 EUR ECB President Draghi’s Speech 3
9/23/2016 AUD RBA’s Governor Lowe Speech 3

Government Bond Auctions

Date Time           Country               Auction

Sep 19 11:00 Belgium Eur 2.8-3.5bn 4.5% Mar 2026,

Sep 20 11:30 UK Gbp 2.5bn 1.5% Jul 2047 Gilt

Sep 21 10:30 Denmark Holds bond auction

Sep 21 11:03 Sweden Sek 2bn 4.25% Feb 2019 & Sek 1.5bn 1.5% Nov 2023 bonds

Sep 21 11:30 Germany Eur 4bn 0% Oct 2021 Bobl

Sep 22 17:20 Italy Announces details of bond auction

Sep 22 19:00 US Usd 11bn 0.125% Jul 2026 TIP

Sep 26 11:30 Germany Eur 1.5bn Sep 2017 Bubill

Sep 26 13:00 Norway Details of bond auction on Sep 28

Sep 27 11:00 Netherlands Eur 0.75-1.25bn 4% Jan 2037 DSL

Sep 27 11:10 Italy Holds zero coupon/BTP€i auction

Sep 28 11:05 Norway Holds bond auction

Sep 28 11:30 Germany Eur 4bn Sep 2018 Schatz

Sep 29 11:03 Sweden Holds I/L bond auction