USD/JPY Fundamental Daily Forecast – Investors Shedding Safe-Haven Yen Amid Upbeat Brexit Comments

BOJ Governor Haruhiko Kuroda said on Tuesday the central bank would not hesitate to take additional easing steps if risks to the economy grow and threaten momentum toward its 2% inflation target.
James Hyerczyk

The Dollar/Yen is trading higher and in a position to take out last week’s high at 108.626 after a string of better-than-expected earnings reports offset concerns over U.S.-China trade relations. A reversal to the upside in U.S. Treasury yields and increased demand for risky assets are also driving investors away from the lower-yielding Japanese Yen.

At 15:33 GMT, the USD/JPY is trading 108.801, up 0.402 or +0.36%.

Upbeat Brexit Outlook

Positive news over Brexit is also reducing demand for the safe-haven Japanese Yen. This move is being fueled by the latest comments on Brexit from European negotiator Michel Barnier sounded an optimistic tone.

“Our team(s) are working hard, and work has just started now today, this work has been intense over the weekend and yesterday, because even if the agreement will be difficult, more and more difficult, to be frank, it is still possible this week,” Barnier told reporters in Luxembourg on Tuesday morning.

Treasury Yields Rise

U.S. Treasury yields are on the rise on Tuesday after opening lower, making the U.S. Dollar a more attractive asset. Traders are saying the move is being fueled as investors dump safe-haven assets like the Japanese Yen amid increasing hopes for a Brexit deal.

U.S. Equities Strengthen

The Japanese Yen is being further pressured by a sharp rise in U.S. equities as corporate earnings season go off to a strong start. The early rally was ignited by strong performances in the banking and health care sectors.

Shares of J.P. Morgan Chase jumped 3.8% after its third-quarter numbers topped analyst expectations. The company’s revenue also hit a record, boosted by home and auto loans along with credit cards.

UnitedHealth posted a quarterly profit that topped analyst expectations by 13 cents per share. The company’s results got a boost from growing pharmacy benefits. UnitedHealth also hiked its full-year earnings guidance. UnitedHealth shares climbed 8%.

Increasing demand for risk is good for the U.S. Dollar because of the carry trade, whereby investors sell borrowed Yen from Japanese banks to buy U.S. equities.

Kuroda Speaks

Earlier today, the Bank of Japan (BOJ) raised its assessment for one of the country’s nine regions and stuck to its sanguine view on the rest, though frail factory production and exports suggested pressure for more stimulus is unlikely to ease anytime soon.

BOJ Governor Haruhiko Kuroda said on Tuesday the central bank would not hesitate to take additional easing steps if risks to the economy grow and threaten momentum toward its 2% inflation target.

“We need to pay closer attention to the possibility that momentum toward achieving our price target will be lost,” Kuroda said in a speech at a quarterly meeting of the central bank’s regional branch managers.

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