USD/JPY Fundamental Daily Forecast – Appetite for Risk, Trade War Fears Will Control Price Action

The Dollar/Yen retreated on Friday in limited price action due to the Good Friday holiday. Volume was down for the session and most of the trading was likely generated by computer algorithms since the major players were likely on the sidelines.

The USD/JPY finished the session at 106.260, down 0.158 or -0.15%.

The Forex pair also finished higher for the week. End-of-the-month and end-of-the-quarter flows into the U.S. Dollar helped support the greenback all week.

The safe haven Japanese Yen was also affected by a drop in risk appetite. Optimism that the United States and China could begin negotiations on trade helped ease concerns about a trade war earlier in the week.

The Dollar was also supported against the Japanese yen on hopes of détente in East Asia. China said on March 27 that North Korea’s leader Kim Jong Un pledged his commitment to denuclearization while U.S. President Donald Trump tweeted that Kim looked forward to meeting with him.

Early Friday, Japan reported that industrial output rose 4.1 percent in February from the previous month against a median forecast for a 5 percent increase and followed a revised 6.8 percent decline in January.

The seasonally adjusted unemployment rate in the country rose to 2.5 percent in February, from 2.4 percent a month earlier, while the jobs-to-applicants ratio fell a little.

Forecast

Traders said the Dollar/Yen’s weakness earlier in the week may have been caused in part by Japanese exporters’ dollar-selling before the financial year-end. However, the Forex pair’s huge gains the rest of the week may have been linked to buying by Japanese investors for the new financial year as the currency deals will be settled next Monday, after the start of the new financial year.

Next week, investors will continue to remain focused on appetite for risky assets, given the volatility in U.S. stock markets, especially the technology sector. Another steep sell-off in equities could make the Japanese Yen a more attractive asset since it is considered a safe haven assets.

Traders will also monitor the negotiations between the United States and China in the hopes that a compromise will help avoid a trade war between the two countries.