USD/JPY Fundamental Daily Forecast – Increased Risk Appetite Catalyst for Upswing

The Dollar/Yen is edging higher after wiping out yesterday’s losses on the back of upbeat comments from China. The news triggered a turnaround in U.S. equity markets which led to increased appetite for risk and the shedding of the safe-haven Japanese Yen. All eyes are likely to remain on the U.S. equity markets today for guidance.

At 0943 GMT, the USD/JPY is trading 108.594, up 0.432 or +0.39%.

The USD/JPY has been primarily supported on Tuesday by stronger equity markets. The buying started in China after officials from the world’s second largest economy signaled more supportive measures in the near-term to counter slowing growth. This news more than offset yesterday’s weaker-than-expected trade balance news that many analysts believed would set the tone for the week.

Helping to generate today’s positive tone are comments from China’s National Development and Reform Commission (NDRC) which said on Tuesday it would aim to achieve “a good start” for the economy in the first quarter, lifting hopes of further economic stimulus.

Furthermore, Chinese Premier Li Keqiang said that the government was seeking to establish conditions to help meet its economic goals for 2019, Reuters reported, citing Chinese state television.

Traders are also eyeing the vote on British Prime Minister Theresa May’s Brexit deal later in the session. Most traders expect May’s proposal to be defeated in parliament. Any negative surprises here could reverse stocks and trigger a flight into the safe-haven Japanese Yen. Positive developments are likely to be supportive from risky assets.

Forecast

Appetite for risk should continue to be supportive for the USD/JPY today with the positive comments generating the initial thrust and strong earnings contributing to any gains the rest of the session.

Earnings season continues today with investors eagerly awaiting the results from J.P. Morgan and Wells Fargo. Yesterday, Citigroup posted a fourth-quarter profit that beat analyst expectations. However, a drop in fixed-income revenue was a concern.

In the U.S., traders will get the opportunity to react to the Producer Price Index report. PPI is expected to come in at -0.1%. Core PPI is expected to have risen 0.2%. The Empire State Manufacturing Index is expected to come in at 11.6 versus last month’s reading of 10.9 percent.

The reports are not expected to garner much of a reaction from traders since the Fed has already suggested it will pause in its interest rate tightening cycle.