USD/JPY Fundamental Daily Forecast – Boosted by Demand for Risk, Jump in Treasury Yields

The Dollar/Yen is trading higher on Monday, helped by strong demand for risky assets and a surge in U.S. Treasury yields. The catalyst behind the strength is better-than-expected factory activity reports out of China. This news helped offset news doubts over a trade deal between the United States and China before the end of the year.

At 09:59 GMT, the USD/JPY is trading 109.648, up 0.139 or +0.13%.

Global Economic News

A private survey of Chinese factory activity in November came in stronger than expected on Monday, with the Caixin/Markit manufacturing Purchasing Managers’ Index for the month rising to 51.8.

Data released on the weekend showed factory activity in China rising more than expected. The official Purchasing Managers’ Index (PMI) was at 50.2 in November, according to China’s National Bureau of Statistics.

Japanese Economic News

Quarterly Capital Spending rose 7.1% versus an estimate of 5.1%. Final Manufacturing PMI was 48.9, slightly better than the 48.6 forecast and previous reading.

Japanese firms boosted capital spending in the September quarter, as retailers and wholesalers raised investment ahead of a long-awaited sales tax hike in October and factories maintained their automation push.

Japanese manufacturing activity contracted again in November, with export orders at their weakest in five months due to slowing foreign demand, including China. Despite the slower pace of decline, the index stayed below the 50.0 threshold that separates contraction from expansion for a seventh month, marking the longest such run since a nine-month stretch from June 2012 to February 2013.

U.S.-China Trade Deal News

Axios reported Sunday, citing a source close to U.S. President Donald Trump’s negotiating team, that the anticipated deal is now “stalled because of Hong Kong legislation” and a “Phase One” agreement between Washington and Beijing would only happen “year-end at the earliest.” The report also said Trump is expected to pause on planned tariffs in December.

Additionally, Chinese state media said Sunday that Beijing wants a rollback of tariffs in the phase one trade deal that the two economic powerhouses are aiming to reach.

Daily Forecast

There’s uncertainty over the trade deal at the start of the new week, but this is being offset by China’s solid manufacturing reports. Furthermore, if financial market traders saw a major problem developing, they’d be buying the Japanese Yen.

Later today, investors will get the opportunity to react to the latest news on U.S. Final Manufacturing PMI, ISM Manufacturing PMI, Construction Spending and ISM Manufacturing Prices.

The ISM Manufacturing PMI is the most important report. It is expected to come in at 49.2. Anything under 50 will indicate contraction. Over 50 will signal expansion.