Forex - USD/JPY weekly outlook: September 17 - 21

Investing.com - The U.S. dollar bounced off a seven-month low against the yen on Friday, gaining more than 1% after Finance Minister Jun Azumi said Japan may be ready to take steps to further weaken the yen.

USD/JPY hit 77.14 on Thursday, the pair’s lowest since February 9, before clawing back to close the week at 78.39 on Friday, adding 0.19% on the week.

The pair is likely to find near-term support at 77.51, Friday's low and resistance at 78.61, the high of August 31.

The dollar weakened to a seven-month low against the yen on Thursday after the Federal Reserve launched a third round of quantitative easing in an effort to spur economic growth in the U.S.

The central bank said it will purchase USD40 billion of mortgage-backed securities every month until the labor market improves.

The Federal Open Market Committee also said it would likely keep the federal funds rate near zero through at least the middle of 2015. The prior guidance on the first rate increase had been late 2014.

The Fed’s decision to undertake a third round of quantitative easing came a week after the European Central Bank unveiled its own bond purchasing program, dubbed Outright Monetary Transactions, and a day after Germany’s Constitutional Court allowed the euro zone’s permanent rescue fund to move forward.

But the yen regained strength on Friday, spiking up more than 1% against the greenback after Finance Minister Jun Azumi signaled he was ready to intervene to weaken the currency, saying he would take “decisive action” if necessary.

The Bank of Japan meets next week, amid growing speculation it will introduce its own quantitative easing to halt the yen’s rise.

Japan lowered the assessment for its economy on Friday, marking the first consecutive downgrade since the waning of the global credit crunch in 2009, fueling concern the world’s third-largest economy will contract this quarter.

Elsewhere, the yen tumbled more than 2% against the euro on Friday, with EUR/JPY settling at a four-month low of 102.95.

Despite the strong gains, the euro remains vulnerable as Spain remained at the center of worries that it will need a bailout.  

Spanish Finance Minister Luis de Guindos said Friday his country still needs time to see how support from the ECB would work before the government requested anything beyond its current bank bailout.

Separately, International Monetary Fund Managing Director Christine Lagarde denied a report in a Dutch newspaper that the IMF and ECB were in discussions regarding a potential bailout for Spain.

In the coming week, investors will continue to focus on Spain's fiscal health, amid ongoing speculation over how close the debt-strapped country is to asking for a full-blown euro zone bailout.

Spain is to hold an auction of 10-year government bonds, which will be an important test of investor appetite for the country’s debt.

Market participants will also be eyeing a policy decision by the Bank of Japan on Wednesday.

Ahead of the coming week, Investing.com has compiled a list of these and other significant events likely to affect the markets.

Monday, September 17

Markets in Japan are to remain closed for a national holiday.

Meanwhile, the U.S. is to publish an index of manufacturing activity in New York state.

Tuesday, September 18

The U.S. is to release official data on the current account, as well as a report on the balance of domestic and foreign investment in long-term securities.

Wednesday, September 19

The Bank of Japan is to announce its benchmark interest rate; the announcement is to be accompanied by the bank’s rate statement, which contains insights into current economic conditions from the bank’s perspective.

Later Wednesday, the U.S. is to publish official data on building permits, an important indicator of future construction activity, as well as data on housing starts, a leading indicator of economic health.

The country is also to publish government data on crude oil stockpiles, as well as an industry report on existing home sales.

Thursday, September 20

Japan is to release official data on the trade balance, the difference in value between imported and exported goods and services.

Also Thursday, the U.S. is to release its weekly government report on initial jobless claims, as well as an index of manufacturing activity in Philadelphia, leading indicators of economic health.

Friday, September 21

There are no relevant events on this day.