USD/JPY Takes A Dive And May Continue Lower – Forecast March 26-30

Dollar/yen dropped to a new 16-month low of 104.63 and for good reasons. Concern about the global trade was a primary driver and the trouble is not over. The last week of March is the end of the fiscal year in Japan. In addition, US GDP, the Tokyo inflation report, and politics may have their say again.

USD/JPY fundamental movers

The Trump Administration moved on from steel and aluminum tariffs to specific trade measures against China. The fear of a global trade war sent money into the safe-haven Japanese yen. Japan was not exempted from the new tariffs on steel and aluminum.

Another reason for the fall of the pair also came from the White House. National Security Adviser H.R. McMaster was ousted and John Bolton, a hawk, comes instead. This raises concerns about the progress made in talks with North Korea about abandoning its nuclear weapons.

The Fed also weighed on the US Dollar by leaving the dot-plot unchanged at three hikes in 2018. The rate hike that Powell announced in his first decision was entirely priced in.

US Final GDP, Japanese inflation

After the stock market crash on Friday, the Tokyo open will be eyed. Another slide in stocks may send the pair lower. Trade fears haven’t waned over the weekend.

The economic calendar is not as busy, but US GDP on Wednesday and the Core PCE on Thursday (the Fed’s favorite inflation measure) stand out.

In Japan, the Tokyo Core CPI for March will be released on Thursday at 23:30. Any uptick from the current 0.9% y/y will boost the yen. However, inflation remains stubbornly low in Japan, as in other developed economies.

Also, watch out for last-minute moves as the fiscal year ends in Japan this week. Portfolio managers may move markets with their adjustments.

See all the main events in the Forex Weekly Outlook

Updates:

USD/JPY Technical Analysis

112.90 served as support in December and is a pivotal line in the range. 112.20 used to be important in the past.

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Gary Anderson 1 year ago Contributor's comment

If trade wars are deflationary, won't the USD, at some point in the future, rally? Maybe not against the Yen but against most other currencies?

Yohay Elam 1 year ago Author's comment

At some point, but in the near future the dollar is under pressure.