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James Hyerczyk
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USD/JPY

The Dollar/Yen is rallying for a second-session on Wednesday, supported by a rebound in U.S. Treasury yields and increased demand for higher risk assets. In economic news, Japan’s exports jumped on solid demand from the United States and China. Meanwhile, the June meeting minutes showed a Bank of Japan board divided on its inflation outlook.

At 08:15 GMT, the USD/JPY is trading 110.150, up 0.291 or +0.26%.

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The USD/JPY is now trading higher for the week after erasing all of Monday’s steep plunge that drove the Forex pair into its lowest level since May 27.

Some traders are attributing the move to safe-haven buying as fears grow that a rampant coronavirus variant could upend the global economic recovery. Others cited the strength in the U.S. economy versus Japan, a turnaround in the U.S. Treasury market and the relentless rally in U.S. equity markets.

The fast-spreading Delta variant of COVID-19 is now the dominant strain worldwide, and has been accompanied by a surge in infections around the United States, particularly in areas where vaccinations have lagged.

Japan’s Exports Jump on Solid US, China Demand

Japan’s exports jumped in June led by U.S. demand for cars and China-bound shipments of chip-making equipment, supporting hopes for an export-led recovery in the world’s third-largest economy.

Exports rose 48.6% in June from a year earlier, the fourth straight month of double-digit gains, although growth was largely exaggerated by a COVID-led plunge last year. Export growth has remained strong eve as a global chip shortage weighs on Japan’s car output and shipments.

By destination, exports to China, Japan’s biggest trading partner, rose 27% in the year to June, led by demand for chip-making equipment, raw materials and plastic. U.S. – bound exports grew 85.5% in June, driven by shipments of cars, auto parts and motors.

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BOJ Board Divided on Inflation Outlook – June Meeting Minutes

Bank of Japan policymakers were divided on the country’s inflation outlook as rising commodity costs and new state-of-emergency curbs to combat the coronavirus pandemic weighed on a fragile recovery, minutes of their June meeting showed on Wednesday.

One member said the central bank must consider various ideas on how it could help Japan’s economy make a smooth transition towards a post-pandemic world, the minutes showed.

Daily Forecast

This week’s recovery in the USD/JPY after Monday’s steep sell-off confirms that this market is being driven by risk appetite. As long as risk is “on”, look for the Forex pair to remain underpinned. But another drop in Treasury yields accompanied by a sharp stock market break through Monday’s lows will bring back the sellers.

As long as yields aren’t falling and stocks breaking, the USD/JPY should remained underpinned, giving investors some time to digest the impact of the new COVID breakout on the global economic recovery.

For a look at all of today’s economic events, check out our economic calendar.
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