USD/JPY Fundamental Weekly Forecast – Fed Chair Announcement One of Many Key Factors This Week

The Dollar/Yen closed higher last week with bullish investors reacting to a number of factors including an election in Japan, U.S. tax reform, the possible selection of a hawkish Fed chair and improving economic data.

For the week, the USD/JPY settled at 113.668, up 0.173 or +0.15%.

The week started with the Dollar/Yen spiking to more than three-month highs against the Japanese Yen during the session. Japanese Prime Minister Shinzo Abe’s ruling coalition secured a two-thirds “super majority” after winning 312 out of 465 seats available at Sunday’s election.

The U.S. Dollar rose against the Japanese Yen because of the divergence in monetary policy between the Federal Reserve and the Bank of Japan. Abe’s solid win at the polls points to a continuation of fiscal and hyper-easy monetary policies under his Abenomics program.

In another move that helped boost the U.S. Dollar, late in the week, the U.S. House of Representatives helped pave the way for deep tax cuts sought by President Trump and Republican leaders, underpinning the greenback.

Investors also focused their attention on candidates to head the U.S. Federal Reserve when current chief Janet Yellen’s term expires in February. President Trump is expected to announce his candidate before his upcoming trip to Asia in early November.

Speculators are betting Trump has whittled his choices to two candidates, Fed Governor Jerome Powell and Stanford University economist John Taylor. The latter is considered the more hawkish of the two so his selection should have a bullish impact on the dollar.

In other news, U.S. Core Durable Goods came in better than expected at 0.7%. Weekly Unemployment Claims also improved. Advance GDP was also higher-than-expected despite the impact of two hurricanes.

Japan’s core consumer prices rose 0.7 percent in September from a year earlier to mark a ninth straight rising month. However, the currency showed limited reaction to the news.

Forecast

Last week ended with the USD/JPY posting a potentially bearish closing price reversal top on Friday. The Japanese Yen edged higher, reversing earlier losses after the Catalonian parliament’s independence declaration from Spain led investors to seek safety from political upheaval.

Catalonia’s declaration was in defiance of the Madrid government, which was preparing to impose direct rule over the region.

This issue could influence the USD/JPY next week if the situation escalates enough to continue to send investors into safe haven assets.

USD/JPY traders are also likely to react to Trump’s announcement for Fed Chair. The dollar could rally if Trump selects John Taylor, the most hawkish candidate.

Also late Friday, a federal grand jury in Washington approved the first charges in the investigation led by special counsel Robert Mueller into alleged Russian meddling in the 2016 U.S. presidential election.

The charges are sealed under orders from a federal judge, and it was not clear what the charges were, adding that anyone facing charges could be taken into custody as soon as Monday.

The USD/JPY could weaken depending on who is named in the indictments. The biggest reaction is likely to come if someone close to President Trump is named.

In other news, the Bank of Japan is likely to maintain policy, leaving its benchmark interest rate at -0.10%.

On November 1, the Fed is going to release its Federal Open Market Committee statement. It is expected to leave interest rates a<1.25%. The language in the statement is expected to be hawkish and indicate the central bank will raise rates in December.

On November 3, all eyes will be on the U.S. Non-Farm Payrolls report. The headline number is expected to show the economy added 311K jobs in October. Average Hourly Earnings are expected to drop from 0.5% in September to 0.2%. The Unemployment Rate is expected to remain unchanged at 4.2%.