USD/JPY Fundamental Daily Forecast – Brexit Concerns Creating “Risk-Off” Scenario

The Dollar/Yen is edging lower early Wednesday as weak demand for global equities is helping to drive up the Japanese Yen’s appeal as a safe-haven asset. Selling pressure increased as risks of a no-deal Brexit ramped up again overnight.

Brexit risks flared amid reports on Tuesday that U.K. Prime Minister Boris Johnson will amend the Brexit bill, explicitly ruling out any extension to the transition period beyond December 2020. The U.K. is due to leave the European Union by January 31.

That would leave little time to reach a trade deal with the EU, raising the risks of a no-deal Brexit.

At 07:54 GMT, the USD/JPY is trading 109.438, down 0.060 or -0.05%.

Sellers Cautious as They Assess the Risks

Rodrigo Catril, senior foreign exchange strategist at the National Australia Bank, called the development a “smart move” by Johnson, who now has a “stronger negotiating position.”

“From a strategic move one could argue that this is a smart move by the PM, forcing the EU to come to the table and push for an agreement in 2020 without the option of kicking the can yet again,” he wrote in a morning note.

“The move suggest GBP path in 2020 looks set to be a volatile one, a hard Brexit cannot be ruled out, but the probability of a positive Brexit solution has also increased,” Catril said, adding that the possibility remains that Johnson could still introduce a new bill for an extension next year.

Japanese Economic News

Japan’s exports slipped for a 12^th straight month in November, as declining shipments to the United States and China hit the trade-reliant economy, raising the risk of a fourth-quarter contraction.

Official data released on Wednesday showed Japan’s exports fell 7.9% year-on-year in November, a smaller decline than the 8.6% decline expected by economists in a Reuters poll.

The gloomy reading, driven by fewer shipments of cars and construction machinery to the United States and chemical products to China, marked the longest run of declines in exports since a 14-month stretch to November 2016.

Daily Forecast

USD/JPY traders are monitoring risk exposure early Wednesday due to the Brexit concerns that appear to be spreading to the U.S. equity markets. U.S. traders don’t like uncertainty and they may use the Brexit developments as an excuse to book profits. Furthermore, some investors are still expressing some concerns over the lack of details regarding the U.S.-China trade deal.

The Brexit worries are not likely to go away today so a “risk-off” session is likely to generate downside pressure on the USD/JPY. The chart pattern indicates the risk of heightened volatility.

Looking ahead, the Bank of Japan is seen keeping monetary policy on hold at its two-day policy meeting ending on Thursday as progress on U.S.-China trade and a $122 billion fiscal package at home to took some pressure off the central bank to support growth.