USD/JPY Risks Larger Correction on Less-Dovish BoJ, Risk Aversion
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Fundamental Forecast for Japanese Yen: Neutral
Price & Time: USD/JPY Topping Out Or Just Consolidating?
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The Japanese Yen remained near-motionless against the US Dollar for the second-straight week, but key events in the days ahead suggest the USDJPY could finally break its recent consolidative range.
A highly-anticipated US Federal Open Market Committee (FOMC) decision failed to spark a break in key Dollar pairs, but similarly significant US Nonfarm Payrolls data in the coming week
Falling energy prices may prompt the BoJ to curb its near-term forecast for inflation, but recent comments from Governor Haruhiko Kuroda suggests that the board will retain its current policy at the January 22 meeting as the central bank head continues to see a moderate recovery in the Japanese economy. After unexpectedly expanding its asset-purchase program at the October 31 meeting, the BoJ may preserve a wait-and-see approach for most of 2015 especially as Japan’s Cabinet approves the JPY 3.5T fiscal stimulus package to encourage a stronger recovery.
With that said, the fresh batch of developments coming out of the BoJ may fail to generate a more bullish outlook for USD/JPY, and the pair remains at risk of facing a larger pullback over the near-term as market participants scale back their appetite for risk. As a result, the dollar-yen correction may continue to take shape ahead of the next Federal Open Market Committee (FOMC) meeting on January 28, but the long-term outlook for USD/JPY remains bullish as Janet Yellen and Co. looks to normalize monetary policy later this year.
In turn, the December low (115.55) remains in focus for USD/JPY as the pair continues to carve a string lower highs & lows in January, and the technical outlook certainly highlights the risk for a further decline in the exchange rate as the Relative Strength Index (RSI) preserves the bearish momentum carried over from the previous month.
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