Fundamental Forecast for JPY: Neutral

Talking Points:

The Yen put in a week of strength against most major currencies, running higher against the Euro, British Pound and Canadian and Australian Dollars. And while the Yen did weaken against what turned out to be a very strong U.S. Dollar, an area of resistance in USD/JPY tempered the top-side move, leaving the five-month old range in place ahead of next week’s Bank of Japan rate decision.

USD/JPY Weekly: Spinning Top at Resistance Keeps USD/JPY’s Five-Month Range Alive

Chart prepared by James Stanley

At next week’s meeting, there are few hopes for any actual moves. The one prospect of change on the horizon is a potential nudge lower to near-term inflation forecasts. In a Bloomberg report earlier in the week, ‘people familiar with the Central Bank’s discussions’ implied that the BoJ may be considering a “small” cut to their inflation projections for this fiscal year, which ends in March of 2018. The current projection of 1.1% has started to look like quite the stretch: August saw inflation come in at a surprising .7%, but this was after four consecutive months of CPI coming in at a .4% clip in a year that saw inflation remain below .5% for a full twelve months.

The BoJ cutting inflation forecasts is becoming quite normal for the bank. They lasted nudged their forecast-lower in July, and this was the sixth time that the bank had pushed back their target for returning inflation to 2%; which they’re currently not expecting to happen until 2020. So, there is little expediency within the bank to investigate stimulus exit or tighter policy options, as the BoJ is still trying to foster an environment in which prices can rise at a faster rate for the aging nation. At the BoJ’s most recent rate decision, we saw little motivation for the BoJ to start looking at tightening; 
and we actually saw a dissenting vote looking for even more accommodation
.