USD/JPY Fundamental Daily Forecast – Investors Focusing on Wednesday Abe/Trump Meeting

The Dollar/Yen traded softer on Monday as investors squared positions ahead of a meeting between U.S. President Donald Trump and Japanese Prime Minister Shinzo Abe on Tuesday and Wednesday. Perhaps limiting the downside pressure was the rally in the stock market which made the safe-haven a little less desirable asset.

The USD/JPY finished the session at 107.103, down 0.230 or -0.21%.

Traders are saying the Trump and Abe are likely to discuss a possible two-way free trade agreement, an idea that Tokyo is likely to reject. Traders are also saying that U.S. officials may try to put pressure on Japan after the U.S. Treasury’s semi-annual currency report published on Friday kept Japan on a monitoring list for possible manipulation.

In the U.S. on Monday, Retail Sales came in better-than-expected, rising 0.6% versus a 0.4% forecast. Core Retail Sales came in as expected at 0.2%.

In other news, the Empire State Manufacturing Index was 15.8, below expectations, Business Inventories stayed the same at 0.6% and the NAHB Housing Market Index was 69 versus a 71 estimate.

Additionally, New York Fed President William Dudley said on Monday the Federal Reserve remains on track to raise interest rates three or four times in 2018, but anymore that that would be unlikely.

Talking to CNBC, Dudley said, “Three or four seems like a reasonable expectation this year.” He went on to add, “As long as inflation is relatively low, the Fed is going to be gradual. Now, if inflation were to go above 2 percent by an appreciable margin, then I think the gradual path might have to be altered.”

Forecast

Traders didn’t pay too much attention to the U.S. economic data on Monday and they may continue to do the same with today’s report from Japan.

At 0430 GMT, investors will get the opportunity to react to Revised Industrial Production which is expected to come in at 4.0%.

Reports in the U.S. on Tuesday include Building Permits which are expected to come in at 4.0%, down slightly from the previously reported 4.1%. Housing Starts are forecast at 1.33 million units, up from 1.30 million units.

Capacity Utilization is expected to rise to 77.9%, however, this will below last month’s 78.1% read. Industrial Production should rise 0.3%, down from the previously reported 1.1%.

Several Fed speakers will also be on-tap including FOMC Members John Williams, Randal Quarles and Raphael Bostic. Traders will be looking for any comments on monetary policy and the number of expected rate hikes this year.

Despite the economic data and the Fed speakers, investors are likely to remain focused on the Trump/Abe meeting on Wednesday and appetite for risk.