USD/JPY Fundamental Daily Forecast – Economists Predict a Boom in October’s US Retail Sales

The Dollar/Yen is inching higher early Tuesday after posting a solid reversal to the upside the previous session on the back of a jump in U.S. Treasury yields.

The move puts the Forex pair within striking distance of the November 6, 2017 main top at 114.728, but three main tops at 114.299, 114.443 and 114.694 currently stand in the way. The daily chart suggests the four-year top at 114.728 could be the gateway to a fast rally into 115.501 – 115.615.

At 07:10 GMT, the USD/JPY is trading 114.209, up 0.074 or +0.06%.

Higher Treasury Yields Underpin Dollar/Yen

U.S. Treasury yields climbed higher Monday as investors continued to digest data from the previous session, which showed workers quitting their jobs in record numbers. The move widened the spread between U.S. Government bonds and Japanese Government bonds, making the U.S. Dollar a more attractive investment.

Late in the session on Monday, the yield on the benchmark 10-year Treasury note rose by 4.1 basis point to 1.625%. The yield on the 30-year Treasury bond added 5.9 basis points, rising to 2.014%.

Supply Shortages Shrink Japan’s Economy More than Expected

Japan’s economy contracted much faster than expected in the third quarter as global supply disruptions hit exports and business spending while new COVID-19 cases soured the consumer mood, undermining efforts to stoke a virtuous growth cycle, Reuters reported.

While many analysts expect the world’s third-largest economy to rebound this quarter as virus curbs ease, worsening global production bottlenecks pose increasing risks to export-reliant Japan, Reuters added.

The economy shrank an annualized 3.0% in July-September after a revised 1.5% gain in the second quarter, preliminary gross domestic product (GDP) data showed on Monday, much worse than a median market forecast of a 0.8% contraction.

“The contraction was far bigger than expected due to supply-chain constraints, which hit car output and capital spending hard,” said Takeshi Minami, chief economist at Norinchukin Research Institute.

“We expect the economy to stage a rebound this quarter but the pace of recovery will be slow as consumption did not get off to a good start even after COVID-19 curbs were eased late in September”

Short-Term Outlook

Treasury yields, U.S. economic data and Fed speaker commentary will continue to drive the price action.

A slew of economic data will be released on Tuesday, including retail sales figures for October. Economists predict a boom in October’s retail sales, aided by rising gasoline prices and early holiday shopping.

Retail sales are expected to rise 1.5%, up from September’s 0.7% gain, according to economists polled by Dow Jones. Excluding autos, sales are forecasted to rise 1%, compared to the 0.8% increase a month earlier, Dow Jones found.

The Census Bureau will release the retail sales report on Tuesday, November 16 at 13:30 GMT.

Additionally, industrial production numbers will also be released, as well as the NAHB housing market index survey.

Stronger-than-expected retail sales will support the case for an early Fed rate hike which could drive the USD/JPY higher.