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US Dollar to Japanese Yen Exchange Rate Forecast to Slip if Trump Fails to Impress Markets

January 16, 2017 - Written by James Fuller

The US Dollar to Japanese Yen exchange rate continued to trend near its worst levels since November on Tuesday afternoon, as USD traders sold off the ‘Greenback’ ahead of this week’s Trump inauguration.

While the US Dollar is likely to recover slightly in the coming days, its losses may be limited unless Donald Trump is able to stimulate market movement with a hawkish comment or two. Or better; indications that his administration will quickly work on introducing fiscal stimulus.

[Previously updated 16/01/2017]

The US Dollar to Japanese Yen exchange rate fell last week as investors became increasingly uncertain about what to expect from the upcoming US Trump Presidency. Traders instead firmed on the Yen, which is being seen as the ‘safe haven’ currency of choice amid US uncertainty.

USD/JPY lost over two Yen in value last week, falling from 116.93 to 114.50 throughout the week. When markets reopened this week, the pair briefly fell to 113.79 – its lowest level in over a month.

US Dollar (USD) Jittery as Trump Uncertainty Weighs

Demand for the US Dollar has slipped in recent weeks following its late-2016 bullishness, as investors reassess their positions ahead of the inauguration of Donald Trump as the next US President.

Markets had high hopes that the Trump administration would quickly work to give a short-term boost to the US job market and other economic factors, leading to spikes in inflation that would in turn pressure the Federal Reserve to have a hawkish year of interest rate hikes.

However, in recent weeks as the Trump transition team is hit by scandal after scandal, the President-elect has neglected the chance to offer further clarity or details on his economic stimulus plans.

Japanese Yen (JPY) Edges Higher as the ‘Safe Haven’ of Choice

The uncertainty of the upcoming Trump administration has weighed heavily on ‘Greenback’ demand, with many investors instead opting for rival ‘safe haven’ currencies like the Japanese Yen to prevent what some predict could be a bumpy 2017.

This has been the primary cause for the Japanese Yen’s slight increase in demand in recent weeks, particularly against the US Dollar as it emerges as the safe currency of choice.

Demand for the Yen has also improved slightly due to lasting optimism from the Bank of Japan (BoJ), which recently raised its economic assessment for three of Japan’s nine regions.

The BoJ underscored the improved outlook ahead due to improvements in private consumption and demand from emerging Asian markets. This also means bets for further economic stimulus from the BoJ are dropping.

USD/JPY Forecast: Further Declines Ahead Unless Trump Impresses Markets

The inauguration of Donald Trump as the 45th President of the USA is mere days away. On the 20th of January, Trump will take office and has claimed in the past that he and his team will make many changes as soon as he does.

If he immediately takes action to boost the US economy, the US Dollar could surge and regain many of its recent losses against the Yen. However, this largely depends on whether Trump’s actions impress.

Investors are concerned that Trump’s fiscal stimulus plans will not take effect as quickly as proposed or that they may not make as big a difference as hoped.

In this scenario, the US Dollar to Japanese Yen exchange rate would continue to fall as investors choose the Yen as their ‘safe haven’ currency of choice, particularly with Japan’s economic outlook improving.

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