USD/JPY Fundamental Daily Forecast – Interest Rate Differential Favoring US Dollar

The Dollar/Yen is trading higher on Tuesday as growing optimism about the outlook of the global economy in the coming months sent investors scurrying to buy riskier currencies like the U.S. Dollar. Yes, against the low-yielding Japanese Yen, the U.S. Dollar is the riskier asset. The Yen is also falling against the Euro, Aussie and Swiss Franc.

At 09:21 GMT, the USD/JPY is trading 105.373, up 0.006 or 0.01%.

The positive outlook for the U.S. economy continues to support financial market sentiment thanks to sharp gains in crude oil prices and optimism over better growth ahead due to the impressive roll-out of COVID vaccines.

Japan Tertiary Activity Index Tanks 3.6% in December 2020

Japan’s tertiary activity declined for the second straight month in December, data from the Ministry of Economy, Trade and Industry showed on Tuesday. The tertiary activity index fell 0.4% month-on-month in December, following a 0.6% decrease in November.

Among the individual components, living and amusement-related services, financial and insurance, transport and postal activities, real estate, business-related services, and goods rental and leasing grew in December.

Medical, health care and welfare, wholesale trade, electricity, gas, heat supply and water, retail trade, flat industries, and information and communications decreased.

On a yearly basis, the tertiary activity index declined 3.6% in December, following a 3.7% slide in the previous month.

30-Year Treasury Yield Holds Above 2% Following President’s Day

Helping to support the USD/JPY is the widening spread between U.S. Government bond yields and Japanese Government bond yields, which is making the U.S. Dollar a more attractive investment.

The 30-year U.S. Treasury yield held above the 2% market on Tuesday morning, as U.S. markets reopened followed President’s Day.

The yield on the benchmark 10-year Treasury note climbed to 1.232% at 08:45 GMT, while the yield on the 30-year Treasury bond rose to 2.029%. Yields move inversely to prices.

Treasury yields were higher as investors continued to watch for progress on President Joe Biden’s proposed $1.9 trillion stimulus package in Congress, as well as the coronavirus vaccine rollout in the United States.

Daily Forecast

On Tuesday, Dollar/Yen traders will continue to focus on the movement in Treasury yields, which will largely be influenced by progress toward turning Biden’s $1.9 trillion stimulus package into law.

Economic data, Fed speakers and Treasury auctions could also set the tone. February data from the New York Empire State manufacturing index is due out at 13:30 GMT.

Federal Reserve Governor Michelle Bowman is expected to speak at the American Bankers Association Conference for Community Bankers at 16:10 GMT.

December data for net U.S. Treasury international capital flows, as well as net purchases of U.S. Treasury bonds and notes, is expected to be published at 21:00 GMT.

Auctions will be held Tuesday for $54 billion of 13-week bills, $51 billion of 26-week bills, $30 billion of 119-day bills and $30 billion of 42-day bills.

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