The Dollar/Yen plunged last week mostly in reaction to dovish comments from a high-ranking U.S. government official. Additional pressure came from slightly hawkish comments from a Bank of Japan official.
The USD/JPY settled at 108.614, down 2.187 or -1.97%.
On January 24, U.S. Treasury Secretary Steven Mnuchin triggered a steep break in the Greenback when he said that a weak dollar was good for U.S. trade. But when given the opportunity to clarify his comments at the World Economic Forum early Thursday, Mnuchin did not latch on to the strong U.S. dollar rhetoric used by past Treasury secretaries.
Mnuchin said during a CNBC-moderated panel that the dollar can fluctuate and he is not concerned by the current weakness, but “in the longer term” believes in the “strength of the dollar.”
U.S. President Donald Trump on January 25 helped turn the dollar around with hawkish comments, saying he wanted a “strong dollar”, contradicting earlier comments made by Treasury Secretary Steven Mnuchin. Trump told CNBC in an interview in Davos, Switzerland, that he ultimately wants the dollar to be strong.
This statement was enough to spook the short-sellers and encourage aggressive short-covering initially, however, the move didn’t last with the USD/JPY moving to a new low for the week on Friday.
Also on Friday, the dollar slipped to its low for the week against the Japanese Yen after Bank of Japan Governor Haruhiko Kuroda said the central bank expects the economy to continue growing at a moderate pace and inflationary expectations are picking up slightly.
Bank of Japan
The Bank of Japan held its monetary policy steady, voting to maintain the short-term interest rate at minus 0.1 percent and the target for the 10-year government bond yield at zero percent.
In an outlook report accompanying the latest monetary policy statement, the BOJ said it is maintaining its forecast for inflation to hit 2 percent in the fiscal year 2019/2020. But it now expects core consumer prices to grow 0.8 percent in the fiscal year 2017/2018, lower than the previous projection of 1.1 percent.
Consumer prices are expected to be up by 1.8 percent in fiscal year 2018/2019, unchanged from the previous forecast, the BOJ added.
Forecast
There are no major reports from Japan this week which means the price action in the Dollar/Yen will be controlled by the direction of the U.S. Dollar. The dollar will be largely influenced by President Trump’s State of the Union speech on Tuesday, January 30 at 9:00 Eastern (0200 GMT Wednesday). Once again, a weaker dollar will be bullish for the Japanese Yen.