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JPY: Japanese investors' JPY Buying In Mid-July To Push USD/JPY Lower

Japanese investors repatriating revenue and exporters buying JPY could continue to support a USDJPY drop in mid-July.

Such moves would not be risk-off moves, but support JPY appreciation positively. Yellen has not been very dovish and Japanese investors may support the lower bound of USDJPY, as they need more investment opportunities abroad.

Weakening confidence in the Trump and Abe administrations of late may support a weaker USD, while JPY selling may not pick up much amidst the uncertain geopolitical landscape

BTMU is bearish on USD/JPY this week expecting the pair to be contained in 110-114 range in the near-term with downside risk.

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BOJ Rate Decision: Bank of Japan Keeps Policy Unchanged Following July Meeting

The Bank of Japan (BOJ) toed the line on monetary policy following its two-day meeting in Tokyo, as officials reiterated their commitment to foster economic growth and inflation through a cocktail of stimulus measures.

The BOJ kept its benchmark interest rate at -0.1%, unchanged since the beginning of 2016. The decision to stand pat was widely expected by investors, who forecast a steady hand with respect to monetary policy for the foreseeable future.

USD/JPY forecast for the week of July 24

The USD/JPY pair fell during the week, slicing through the 112 level rather handily. The market looks likely to find support at the 110 handle though, and I think that buyers will continue to be attracted to this level, and I’m willing to buy close to the 110 handle. I believe that a supportive candle will present itself that we can start buying. The market could very well bounce from there and reach towards the 114.50 level above. A break above the 115 handle would signify that were going to go much higher, but there is a lot of work to be done between now and then. Once we do break above the 115 handle, the market should then go looking for the 118.50 level. I still believe in the uptrend, and I believe that the Federal Reserve will continue to raise interest rates going forward, regardless of what some pundits may think.

Japan preliminary manufacturing PMI for July: 52.2 (prior 52.4)

Key findings' from Markit:

52.2 in July is an 8 month low
Flash Manufacturing Output Index at 51.4 (52.2 in June). Weakest growth for 10 months
Export orders stagnate

Comment, Paul Smith, Senior Economist at IHS Markit:

"July's survey data indicated a further easing of growth in both orders and output from May's recent highs. The slowdown was driven by stagnation in export orders, amid reports of weaker demand from South East Asia markets.
Nonetheless, the sector continues to add jobs, with employment growth remaining amongst the best since the financial crisis, whilst optimism hit its highest level in five years of data collection."

Dated BOJ Minutes Show Heated Discussion Over Policy Disclosure

Bank of Japan (BOJ) officials contested how much information they should disclose to the public about a possible exit from ultra-loose monetary policy, the minutes from the bank’s June 15-16 minutes showed Tuesday.

Several committee members expressed the belief that providing information on a potential exit from quantitative easing could cause turbulence in the financial markets. Some members also said that the BOJ must clearly explain how it would manage any deviation from its current path.

Japan’s central bank shifted its policy focus last September from base-money targeting to yield-curve target as it became clear that the existing program wasn’t bringing about desired inflation and economic growth. The Japanese economy has improved markedly since then, but remains well below the BOJ’s targets.

Policymakers noted in the June meeting that inflation remains well below the 2% target. Core inflation rose in May for a fifth consecutive month, government data showed.

The BOJ kept policy on hold in June and made no further moves at its most recent meeting earlier this month. The central bank began its quantitative easing campaign in 2013 shortly after Prime Minister Shinzo Abe entered office.

Abe’s pro-growth policies are centered on “three arrows” of monetary easing, fiscal stimulus and structural reforms.

JPY: Is Abenomics Coming To An End? What Would It Mean For JPY?

Credit Agricole CIB FX Strategy Research notes that a more cautious Fed rhetoric of late and lacklustre price action in UST yields have kept USD/JPY confined to a tight range of late.

"This much could mean that the pair would continue to follow the broader swings in the USD TWI in the near term. Evidence of returning economic resilience from next week’s US economic data (non-farm payrolls and ISM) could help USD/JPY recover some lost ground but it may not be enough to trigger a sustained uptrend," CACIB argues.

In addition, CACIB notes that political risks seem to be lingering in Japan after the Tokyo local election, which saw support for the ruling LDP party collapsing to record lows.

"While we expect PM Abe to keep his job after September and maintain a bearish view on JPY in the coming months, market doubts about the future of Abenomics may weigh on Japanese stocks and overall sentiment, and discourage aggressive selling of the currency for now

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USD/JPY forecast for the week of July 31

The USD/JPY pair initially rally during the week, but as the Federal Reserve was a bit more dovish than anticipated this week, the US dollar fell. The 110 level below looks to be supportive, and with this being the case it’s likely that we will find some type of support. Ultimately, this should be an opportunity for value hunters if we get some type of supportive candle. If we can break above the top of the weekly candle, that would be bullish as well. If we break down below the hammer from 6 weeks ago, then the market could plunge quite a bit farther from here. Ultimately, this is a market that I think is going to continue to be very choppy and sideways, so I think that any different here will probably be somewhat shallow.

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