The Dollar/Yen declined last week as a sharp break in U.S. equity markets sent investors into the safety of the Japanese currency. The Forex pair reached its lowest level since the week-ending November 11, 2016.

The USD/JPY settled at 104.717, down 1.235 or -1.17%.

Driving the price action last week was a less-hawkish U.S. Federal Reserve Monetary Policy Statement and President Trump’s decision to impose tariffs on China, prompting fears of a trade war.

To recap last week’s major events:

On March 21, the U.S. Federal Reserve raised rates for the sixth time since the policymaking Federal Open Market Committee (FOMC) began hiking rates off near-zero in December 2015. The widely expected move put the benchmark funds rate at a target of 1.5 percent to 1.75 percent.

The Fed also upgraded its economic forecast, and dropped hints that the path of rate hikes could be more aggressive. The market currently expects three hikes for 2018, and that remained the baseline forecast, but at least one more increase was added in the following two years. The fact that traders were pricing in a 38-percent chance of four rates hikes probably led to dollar weakness.

Fed officials raised their forecast for 2018 GDP growth from 2.5 percent in December to 2.7 percent, and increased the 2019 expectation from 2.1 percent to 2.4 percent.

Inflation expectations changed little. The 2018 forecast remains just 1.9 percent for both core and headline inflation.

In other news, President Donald Trump signed an executive memorandum on March 22 that would impose retaliatory tariffs on up to $60 billion in Chinese imports.

The new measures are designed to penalize China for trade practices that the Trump Administration says involve stealing American companies’ intellectual property.

The dollar weakened on the fear that China is likely to retaliate against the tariffs by targeting U.S. agricultural products that are reliant on the Chinese export market.

Forecast

The direction of the USD/JPY this week is likely to be determined by investor appetite for risk. Investors are likely to continue to move money into the safe haven Yen if investor demand for risky assets continues to decline.

If stocks stop their slide and volatility settles into a range then look for the Dollar/Yen to recover some of last week’s loss.

Essentially, lower demand for risky assets drives investors into U.S. Treasurys. When this happens, yields fall and when they drop, the U.S. Dollar becomes a less-desirable asset.

There are no major reports from Japan this week, but investors will get the opportunity to react to the latest U.S. data on CB Consumer Confidence and Final GDP.