Home » JPY » US Dollar to Japanese Yen Exchange Rate Forecast: USD/JPY Rally Could Continue as BoJ Rate Hike Bets Fall

US Dollar to Japanese Yen Exchange Rate Forecast: USD/JPY Rally Could Continue as BoJ Rate Hike Bets Fall

Japanese Yen Currency Forecast

US Dollar to Japanese Yen Exchange Rate Surges to Two-Month-High as Outlook Rises

This week has been a particularly bullish one for the US Dollar to Japanese Yen (USD/JPY) exchange rate. The US Dollar (USD) has been able to capitalise on a strengthening US economic outlook due to relaxed caution from the Bank of Japan (BoJ).

Since opening this week at the level of 107.66, USD/JPY has seen significant gains of almost two yen in the pair’s biggest weekly gains this year so far. On Friday morning, USD/JPY trended near a two-month-high of 109.45.

The US Dollar (USD) remained appealing versus the Japanese Yen (JPY) on Friday as the Bank of Japan’s latest monetary policy was notably cautious.

As was widely expected, the Bank of Japan left monetary policy frozen. The bank also expressed confidence that Japan’s economy was strengthening and would continue to do so.

However, the bank disappointed investors by acknowledging that meeting its inflation targets was taking longer than expected. The bank removed phrasing regarding the timeframe for its inflation targets – phrasing which had been in place since 2013.

This somewhat surprising move indicated to markets that the bank was not in a hurry to reach its inflation targets, but also dampened hopes of any tighter monetary policy from the BoJ any time soon.

US Dollar (USD) Exchange Rates Bolstered as US Growth Outlook Strengthens

Strength in US Treasury 10-year bond yields could have helped the US Dollar to post one of its best weekly gains in years. The bond yields performance indicates a firming market confidence in the strength of the US economic outlook.

The US 10-year bond yield reached over 3% for the first time since January 2014 this week, in one of the biggest signs that US investors expected US price pressures to strengthen and US interest rates to rise.

This week’s bond yield news and US data has prompted some investors to unwind short bets against the US Dollar too, indicating that the currency’s outlook was strengthening.

Investors have been more optimistic on the US Dollar as US political and trade uncertainties have lightened or have taken a backseat.

According to Michael Sneyd from BNP Paribas in London:

‘US rates didn’t matter for the Dollar, now they do and our positioning metrics suggest there is further scope for short Dollar positions to be unwound,’

Japanese Yen (JPY) Exchange Rates Largely Uninspired by Japanese Data

The biggest focus for Japanese Yen investors recently has been risk-sentiment and Bank of Japan (BoJ) news, so the latest Japanese data has not been particularly influential for trade.

However, Friday’s Japanese data was unlikely to have offered JPY much support regardless.

Japan’s March unemployment rate remained at 2.5% as was widely forecast, but March’s retail sales results unexpectedly slumped.

Japanese retail sales contracted -0.7% month-on-month and slowed from 1.7% to 1.0% year-on-year despite being forecast to come in at 1.7%.

US Dollar to Japanese Yen (USD/JPY) Forecast: Federal Reserve Decision in Focus

With the Bank of Japan’s (BoJ) April policy decision over, US Dollar to Japanese Yen (USD/JPY) exchange rate investors are now eagerly anticipating May’s Federal Reserve decision.

The Fed’s next decision will take place this coming Wednesday and is not expected to result in any changes to US monetary policy.

Instead, investors will be focused on the tone the bank takes regarding 2018’s remaining monetary policy plans.

Amid strong US data and the rising US bond yields, markets hope that the Fed will indicate three more interest rate hikes are on the way this year – on top of the one hike that already took place.

If the Fed hints that it is sticking to its initial target of only two more rate hikes this year though, the US Dollar could shed some of its recent gains against the Yen.

Major datasets could also influence USD/JPY over the next week, including key US PMIs, PCE data and Non-Farm Payroll results, as well as Japanese consumer confidence stats.