The US Dollar to Japanese Yen exchange rate has fluctuated widely below the key psychological resistance level of 118.00 for almost a month now. What would it take for USD JPY to break through and how soon is it likely to occur? 2017’s US inflation and interest rate outlook makes it seem more than possible.
US Dollar (USD) Limp Ahead of Trump Inauguration
Demand for the US Dollar has been generally poor this week as the US currency appeared to have run the course of its bullishness and simply lacked the momentum to continue gaining.
Investors already hope for US inflation to spike during the upcoming Trump Presidency and many are optimistic that the Federal Reserve will hike US interest rates two to three times throughout 2017.
These are the main reasons behind the USD JPY exchange rate surge since November, but until higher inflation or interest rate hikes are confirmed the US Dollar is limited.
This is also why the US Dollar was little-influenced by the Federal Reserve’s December meeting minutes on Wednesday.
The minutes merely reasserted what USD traders have been bullish on since December, though it did confirm what some suspected; that Trump’s fiscal policy proposals pressured policymakers to take a hawkish stance.
Japanese Yen (JPY) Sturdies on Hopes for Japanese Growth in 2017
While USD JPY exchange rates have soared since November, the Japanese Yen has strengthened in the first week of 2017 as investors take an optimistic stance on the year ahead.
The rapid weakening of the Japanese Yen has left analysts predicting that Japanese exporters will see considerable success in 2017. This, as well as attempts from the Japanese government to boost consumer spending are the reasons many expect the Japanese economy to grow this year.
Demand for the Japanese Yen was also boosted slightly by Japan Prime Minister Shinzo Abe’s New Year speech in which he reasserted his focus on boosting the nation’s economy.
Wednesday morning also saw hawkish comments from Bank of Japan (BoJ) Governor Haruhiko Kuroda indicating that progress was being made on the fight against deflation in Japan throughout 2017. Overall, Japanese traders were in high spirits this week which kept JPY USD buoyant.
US Dollar Japanese Yen 2017 Forecast: Further Gains Rely on US Inflation Spikes
Most mid to long-term US Dollar forecasts are bullish and this is largely because of President-elect Donald Trump’s proposals to stimulate the US economy with a set of aggressive fiscal policies once he takes office.
If successful, this could prompt a boost in inflation that will also pressure the Federal Reserve to hike US interest rates further – hence the Fed’s upgraded forecasts for 2017 monetary policy.
This is a significant upside risk for the US Dollar, but it does depend on whether or not Trump’s fiscal policies are actually implemented and if they work. Uncertainty is high ahead of Trump’s inauguration on the 20th and analysts are split on whether or not a lot will change.
Friday’s US Non-Farm Payroll report will also help analysts to formulate long-term forecasts for the US economy, as part of Trump’s stimulus plan is to create more jobs. The Fed has hinted that if the US job market remains near capacity, stimulating the labour market may not actually cause much change.
This is just one of the many uncertainties in the 2017 US economic outlook. Others include the possibility that Trump will crack down on international trade, which could have adverse effects on the economy.
As for the Japanese Yen, it’s likely to continue being heavily influenced by US Dollar movement. If the US Dollar suddenly becomes highly unappealing, investors will flock into JPY and cause USD JPY to plummet.
On the other hand, USD JPY could advance throughout the year if investors continue to favour the ‘Greenback’.
USD JPY Interbank Rate
The US Dollar Japanese Yen 2017 exchange rate trended in the region of 116.70, while the Japanese Yen US Dollar exchange rate traded at around 0.0085.
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