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Fundamental Forecast for JPY: Bullish

• Bank of Japan impact fades a week on – here’s what we’re watching

• USD/JPY is down but not out following poor NFP’s

• If you’re looking for in-depth coverage, check out our Trading Guides; and if you’re looking for ideas more short-term in nature, our SSI indicator may be for you.

The Japanese Yen gave back some of its recent gains versus the US Dollar in a choppy week for financial markets. Yet momentum remains in the Yen’s favor—particularly given key US economic data disappointments. Japanese markets will be closed for most of the “Golden Week” holiday ahead, and this in itself suggests volatility may slow. Recent volatility in the US Dollar and broader FX markets suggest we may see notable JPY swings all the same.

Our attention turns to developments in the United States, China, and global financial markets. The key question is simple: will the US S&P 500 and other market bellwethers recover following two consecutive weeks of notable declines? In Japan the Nikkei 225 trades firmly in “bear market” territory as it has fallen well over 20 percent from the highs it set through late 2015. Traders have taken a more sanguine view of US stocks as the S&P trades within five percent of all-time highs. Yet it hardly seems like the time for complacency; recent disappointments in key US corporate earnings reports warn that trends may be turning.

It was just last week when inaction from the Bank of Japan sent global markets sharply lower, and the notable reaction underlines the relative fragility of investor sentiment. The upcoming Japanese market holiday all but guarantees that BoJ policy outlook will remain unchanged in the week ahead. But a planned monetary policy decision from the Bank of England and scheduled speeches from US Federal Reserve officials will keep central bankers in the spotlight. It seems exceedingly unlikely the Bank of England will change policy, and a sharp shift in rhetoric from Fed officials is similarly implausible.

But we can’t rule out sharp market reactions to even modest surprises from either UK or US officials. Investors widely expected the Bank of Japan would ease policy further. The subsequent disappointment arguably underlined market dependence on extremely low borrowing costs and other unconventional measures of monetary policy stimulus. It is in that sense that any unexpected hawkishness or inflexibility from the Fed and BoE could shake market confidence.

Traders should otherwise watch upcoming Chinese Consumer Price Index inflation and Loans figures, Euro Zone Gross Domestic Product growth data, and an often market-moving US Advance Retail Sales report for foreseeable volatility risk. It could very well be a quiet week for the Japanese Yen, but this is far from guaranteed. The JPY stands to rally further if/when we see a notable turmoil in global financial markets.