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USD/JPY Fundamental Daily Forecast – Brexit Confusion Weighing on Investor Risk Appetite

The USD/JPY is likely to remain under pressure until the European Union (EU) responds to the request to delay the current Brexit deadline of October 31.
James Hyerczyk
USD/JPY

The Dollar/Yen is edging lower on Wednesday as Brexit confusion weighed on investor appetite for risk, sending them into the perceived safety of the Japanese currency. The catalyst generating the move into safe-haven assets are developments on Brexit overnight which meant the deadline for the U.K. to leave the European Union would likely be delayed again.

At 08:32 GMT, the USD/JPY is trading 108.370, down 0.119 or -0.10%.

Investors are saying the fate of Brexit is hanging in the balance, with the British Parliament still divided on how, when or even if to engineer Britain’s departure from the European Union.

Brexit Recap

On Tuesday, British lawmakers voted by 329 to 299 in favor of Prime Minister Boris Johnson’s Brexit plan, but then opposed Johnson’s extremely tight timetable to complete the legislative process in three days by 322 to 308 votes.

It is now up to the EU to decide whether to extend Britain’s October 31 deadline for its departure from the bloc, although there is hope Britain can avoid the worst-case scenario of leaving the EU without any deal in place.

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IMF Sees Slower Growth in Major Asian Economies

The International Monetary Fund (IMF) cut its growth predications for Asia-Pacific economies for this and next year because of headwinds from policy uncertainty, trade disputes and weakness in major trading partners.

Growth in 2019 will be the weakest since the 2008 financial crisis. The IMF anticipates global growth of 3 percent, a drop of 0.3 percentage points from its April forecast, and a substantial reduction from the 3.6 percent expansion that occurred last year.

According to the IMF report, Japan’s economy is anticipated to grow just 0.5 percent next year, its structural problems compounded by the trade war waged by its two largest trade partners and the prospect of being hit by sanctions by the U.S.

An editorial at the Japantimes said, “To their credit, Japanese companies have improved profitability and, almost alone among the world’s largest economies, reduced speculative debt, but a downturn on the scale of the global crisis would render too large a portion of corporate debt unserviceable. Alert and anticipatory policy is required; while their influence is limited, Japanese policymakers must do more to shape the global economic environment.”

Daily Forecast

The USD/JPY is likely to remain under pressure until the European Union (EU) responds to the request to delay the current Brexit deadline of October 31.

Traders will also get the chance to respond to the U.S. Home Price Index and Federal Budget Balance. In the meantime, traders have already priced in a 25-basis point rate cut by the Federal Reserve on October 30. They’re also looking for further stimulus from the Bank of Japan on October 31, however, it’s all speculation at this time with the need to ramp up stimulus still unclear.

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