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USD/JPY Fundamental Daily Forecast – Yen Spikes Higher on Reports BOJ Officials Considering Policy Change

James Hyerczyk

The Dollar/Yen is trading sharply lower early Monday as investors continue to react to a combination of potentially bearish fundamental and technical events.

At 0618 GMT, the USD/JPY is trading 110.931, down 0.532 or 0.47%.

The forex pair opened lower early Monday in reaction to U.S. President Donald Trump’s comments on the greenback’s strength last Friday and his criticism of Fed policy on Thursday. The Japanese Yen also spiked higher on reports Japan’s central bank is debating moves to reduce its massive monetary stimulus.

Essentially, Trump expressed concerns that the Fed’s plan to raise interest rates at least two more times this year will drive the U.S. Dollar higher, potentially hurting the U.S. economy.

The Dollar/Yen was also pressured after Reuters and other media reported that the Bank of Japan is actively discussing changes to its policies. The BOJ is scheduled to hold its next monetary policy meeting on July 30 and 31.

The USD/JPY is currently trading at a two-week, having lost more than two percent from its six-month peak of 113.18 hit less than a week ago.

Daily USD/JPY

Technical factors are also driving the price action early Monday. On Thursday, the USD/USD formed a technically bearish closing price reversal top on the daily chart. The chart pattern was confirmed on Friday and reaffirmed earlier today.

The main range is defined as the May 29 bottom at 108.114 and the July 19 top at 113.210. Its first major target is the 50% to 61.8% retracement zone at 110.662 to 110.061. Buyers could step in on a test of this zone. Triggering a retracement of the break from 113.210 to today’s intraday low.

The nearest short-term bottom is 110.280. A trade through this level will change the main trend to down on the daily chart.

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Forecast

Trump’s comments may have ignited the initial sell-off in the Dollar/Yen, however, they are now an afterthought due to the reports that the BOJ is considering a shift in monetary policy. The story is still breaking and details are sparse, but investors are wasting no time waiting for an official word which probably won’t come out until next week’s central bank meeting.

According to Bloomberg, the BOJ will likely emphasize in its communication that allowing JGB 10-year yields to rise higher than 0.10% will add flexibility to monetary policy, and it is not a tightening.

Governor Haruhiko Kuroda said, “I know absolutely nothing about the basis for those reports,” when asked about the media reports while he was in Buenos Aires to attend a meeting of finance ministers and central bank governors.

This article was originally posted on FX Empire

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