USD/JPY Fundamental Daily Forecast – Bulls Hoping for Strong Manufacturing PMI Data

The Dollar/Yen is trading higher on Tuesday shortly before the U.S. opening, but the Forex pair is off its high ahead of a slew of U.S. economic data and scheduled Fed speakers. We could also be looking at profit-taking as today’s intraday high at 108.465 fell just short of the previous main top at 108.478.

At 10:55 GMT, the USD/JPY is trading 108.265, up 0.198 or +0.18%.

Japanese Economic Data

Japan released a series of economic reports that could help the Bank of Japan decide whether to trim interest rates and announce more stimulus at its policy meeting later in the month.

The data was mixed with the Unemployment Rate, the Tankan Manufacturing Index and the Tankan Non-Manufacturing Index, coming in better than expected.

Housing Starts and Final Manufacturing PMI came in lower than expected.

The Japanese Yen may have firmed a little early Tuesday as the deterioration in the Bank of Japan’s (BOJ) tankan survey was less than expected.

Japanese big manufacturer’s business confidence worsened to a six-year low in the July-September quarter, a central bank survey showed, a sign the bitter U.S.-China trade war is taking a heavier toll on the export-reliant economy.

Optimism Over Trade Deal Boost U.S. Dollar

On Monday, the USD/JPY rose on the hopes of a U.S.-China trade deal. Investors are bullish on the dollar ahead of the start of trade talks between the economic powerhouses on October 10-11 after trade talks collapsed in May.

White House trade adviser Peter Navarro added to the optimism when he dismissed reports that the Trump administration was considering delisting Chinese companies from U.S. stock exchanges as “fake news”. His comment helped drive investors back into higher risk assets after a decline on Friday.

Daily Forecast

Today’s key report is ISM US Manufacturing PMI. It is expected to come in at 50.4, up from 49.1. It’s very important that this report come in above 50.0 because a reading under this level will indicate a contraction in the manufacturing sector.

Currently, investors have low expectations for an October rate cut. However, a weak Manufacturing PMI report could raise the chances. This would weaken the dollar and send investors into the Japanese Yen.

Traders will be watching the Fed speakers to see if they support another rate cut in October, or if they believe the Fed should “wait and see” until December. Lately, the spread between U.S. Government bond yields and Japanese Government bonds has been widening amid the belief that the Fed will hit the pause button on a third rate cut in October, while the BOJ plans more stimulus measures.