Fundamental Forecast for Yen:Bullish

When the Japanese Yen is best performer against the US Dollar over a week and is higher against 31 of its peers over a sixth month span, global markets are typically not ‘Bullish’. This time is no exception as global markets as per the MSCI Emerging Market Stock Index is down for 8 straight days, marking the largest slump since June. Additionally, the continual drop in energy with US Oil breaking $36 toward the 2008 lows of $32.40 and Iron Ore down for 9 straight weeks.

The Bank of Japan is expected to leave its policy unchanged at the policy-meeting schedule for December 17/18. Governor Kuroda will likely be the focus, but his confidence in the corporation’s steadiness could continue to disappoint those looking to another manufactured weakening of the JPY. If you remember, the Bank of Japan targeted a 2% inflation rate by 2017 and they vowed they would put the monetary policy in place to reach their goal. But, markets aren’t that simple, even when you through a few Trillion Yen at the problem. Thanks in large part to WTI Crude Oil, China, and other factors weakening inflation, it looks like they will not hit that target. The prospect of a Federal Reserve Rate hike may be nearly all priced in, but what could further hurt the prospects of reaching a 2% target would be a stronger JPY than what we’ve recently seen (think USD/JPY ~ 100). A few top-tier investment banks are calling 2016, ‘The Year of the Yen’, in anticipation of further inaction from the BoJ that will continue to push down import prices and detract export demand.