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USD/JPY Fundamental Daily Forecast – Could Strengthen if Powell Talks Up Economy

Federal Reserve Chairman Jerome Powell appears before Congress on Tuesday to begin two days of testimony and is expected to reiterate that the U.S. economy is doing well but that rates stay low given subdued inflation. This should be enough to support demand for higher-yielding assets.
James Hyerczyk

The Dollar/Yen is moving higher on Monday as the “risk on” scenario, which began on Wall Street on Monday, spread to the Asian and European equity markets early Tuesday, as investors shed the safe-haven Japanese Yen for the higher-yielding U.S. Dollar. The catalyst behind the early strength is rising risk appetite that is being driven by an apparent slowdown in the rate of coronavirus infection, even as the death toll rises.

At 07:57 GMT, the USD/JPY is trading 109.896, up 0.123 or +0.11%.

“The absolute number of cases continues to climb. That remains a worry. But where the market has taken a bit of comfort is that the rate of infection seems to have come down,” said Bank of Singapore currency strategist Moh Siong Sim.

Dollar/Yen Not Running Away as Concerns Linger

Volume is down on Tuesday because of a public holiday in Japan. However, volume was also down on Monday despite another strong performance on Wall Street that saw the tech-based NASDAQ Composite reach a new record high.

Traders aren’t aggressively buying the USD/JPY because there are still plenty of jitters in the market as an advance team of international experts arrived in China to investigate the coronavirus outbreak.

The World Health Organization (WHO) has warned the spread of coronavirus among people who had not been to China could be “the spark that becomes a bigger fire”.

JPMorgan has again downgraded forecasts for growth this quarter, as businesses struggle to get back to work and supply chain disruptions bite.

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Daily Forecast

Stocks finished higher in Asia and are moving higher in Europe. U.S. futures markets also indicate a higher opening on Tuesday. This may be enough to underpin the USD/JPY throughout the trading session.

Federal Reserve Chairman Jerome Powell appears before Congress on Tuesday to begin two days of testimony and is expected to reiterate that the U.S. economy is doing well but that rates stay low given subdued inflation. This should be enough to support demand for higher-yielding assets.

Powell could trigger a break in the stock market if he talks about the Fed being concerned about overvalued assets, or if he says the coronavirus will hurt U.S. growth in the first quarter. A weak stock market will drive investors back into the safe-haven Japanese Yen.

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