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USD to JPY Exchange Rate Slips Back Towards Week?s Opening Levels

June 23, 2017 - Written by Tim Boyer

Despite mixed Japanese data over the last week, a lack of sturdy Federal Reserve interest rate hike bets has seen the US Dollar to Japanese Yen exchange rate shed most of this week’s gains and trend closer to the week’s opening levels.

Movement in USD/JPY was relatively narrow this week. The pair began the week trading at around 110.80 and advanced to a high of 111.74 earlier in the week. Towards the end of the week USD/JPY held its ground above the level of 111.00.

USD Strength Limited on Mixed Fed Rate Hike Bets

The US Dollar saw an increase in demand earlier in the week as New York Federal Reserve President William Dudley suggested US inflation and wage growth would soon bounce back from recent lows.

As Dudley is commonly seen as representative of the Fed’s majority view, this bolstered market hopes that there could still be a third 2017 US interest rate hike.

However, towards the end of the week 2017 Fed rate hike bets remained below 50%, indicating there was still high uncertainty about the US economic outlook. This has weighed on US Dollar demand and caused some late-week-slips.

The week’s US data has so far had no notable impact on US Dollar exchange rate movement.

Thursday saw the publication of the latest US jobless claims results. Continuing jobless claims were higher than hoped, coming in at 1944k. However, as jobless claims have remained near historical lows the US outlook was little changed.

April’s US house price index beat expectations, rising to 0.7% despite being forecast to slip to 0.4%. The previous figure was revised higher, from 0.6% to 0.7%.

JPY Edges Higher as Japanese Government Upgrades Economic Outlook

The Japanese Yen slipped earlier in the week. Hawkish Fed comments boosted the US Dollar and disappointing Japanese trade data from May limited Yen strength.

The Bank of Japan’s (BoJ) latest meeting minutes also offered nothing in the way of surprises, generally continuing its recent narrative.

However, since the middle of the week the US Dollar has weakened and the Japanese Yen has recovered some of the week’s losses.

The latest economic report from the Japanese government has supported the Yen slightly, as the government’s economic outlook for Japan was upgraded slightly.

As usual, the Cabinet Office’s report for June stated that Japan’s economy was seeing ‘moderate recovery’. What was notable however was the removal of a more cautionary line that had appeared in May’s report.

May’s report had mentioned that some parts of the economy suffered ‘delayed improvement’. The minor change to the report was not enough to significantly improve Yen demand however.

Friday saw the publication of Japan’s preliminary June manufacturing PMI from Nikkei, which fell short of expectations of 53.4 and slipped from 53.1 to 52. This helped the US Dollar to Japanese Yen exchange rate to hold just above the week’s opening levels towards the end of the week.

USD/JPY Forecast: Key Data Due Next Week

The US Dollar to Japanese Yen exchange rate outlook has the potential to change over the next week as multiple key US and Japan ecostats are due for publication.

Next week’s US economic calendar includes May’s durable goods orders report and the final Q1 Gross Domestic Product (GDP) report.
US Dollar investors are also likely to be pay attention to Michigan’s final June surveys next week. In particular, Michigan’s inflation expectations survey could boost Fed rate hike bets slightly if they impress.

On the other hand, if they disappoint Fed rate hike bets could slip and the US Dollar could remain flat and range bound throughout the week. The US Dollar forecast once again heavily depends on the Federal Reserve interest rate hike outlook.

Key Japanese data will also be published throughout next week. Retail sales stats from May, May’s Consumer Price Index (CPI) report and May’s unemployment rate will be published later in the week.

Of particular importance will be the inflation report. If Japanese inflation beats expectations, the US Dollar to Japanese Yen exchange rate could drop next week.
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