USD/JPY Fundamental Daily Forecast – Japan Retail Sales Rise for Eighth Straight Month

The Dollar/Yen is edging lower early Tuesday following a volatile trading session the previous day. Early selling pressure was fueled by investors buying the Japanese Yen for safe-haven protection as investors dumped risky assets in response to unrest in China. The Forex pair rebounded in a big way from its intraday low, however, after a Fed official sent a hawkish message to traders.

At 02:48 GMT, the USD/JPY is trading 138.769, down 0.142 or -0.10%. On Monday, the Invesco CurrencyShares Japanese Yen Trust ETF (FXY) settled at $67.16, up $0.06 or +0.09%.

Japanese Yen Holds Steady as China’s COVID-related Worries Weigh

The Japanese Yen is up slightly against the U.S. Dollar as concerns about unrest in China over COVID-19 restrictions dampened market sentiment, however, its gains are being limited as hawkish remarks from Federal Reserve officials supported the greenback.

Rising tensions in China over the country’s stringent pandemic measures sent investors flocking to the safe-haven Yen. Police in China on Monday stopped and searched people at the sites of weekend protests in Shanghai and Beijing, after crowds there and in other cities demonstrated against the country’s strict zero-COVID policy.

Hawkish Fed Remarks Offset China Worries

The greenback may be getting some support today after Monday’s dramatic turnaround was fueled by hawkish comments from St. Louis Fed President James Bullard and New York Fed President John Williams.

Bullard said that the Fed needs to raise interest rates quite a bit further, while Williams said the U.S. central bank needs to press forward with rate rises but did not say how fast it will need to boost short-term borrowing costs.

Limited Reaction to Japanese Economic News

Japan’s Unemployment Rate came in unchanged at 2.6%, however, it was higher than the 2.5% forecast.

Retail Sales plunged from an upwardly revised 4.8% to 4.3%. This was less than the 5.0% estimate. However, it also marked an eighth successive month of annual growth in October after a full reopening of borders added to the boost from this year’s dismantling of internal pandemic control measures.

There was little growth from September, however, as Japanese households were squeezed by inflation running at its fastest pace in 40 years.

Short-Term Outlook

Traders are going to try to hold the USD/JPY in a trading range as they await key data due later this week that will provide insights into how the U.S. economy is faring amid high interest rates and inflation.

Data on Tuesday includes the Home Price Index (HPI), the S&P/CS Composite-20 HPI y/y and the Conference Board’s Consumer Confidence report.

A series of key labor market data is due also due this week, including ADP’s private business payroll figures and JOLTS job openings on Wednesday, as well as November Non-Farm Payrolls and Unemployment data on Friday.

All eyes will also be on comments from Fed Chair Jerome Powell on Wednesday. Traders will be watching for any new signals on further tightening. The Fed is widely expected to hike rates by an additional 50 basis points when it meets on December 13-14.