USD/JPY Fundamental Daily Forecast – Lingering Trade War Concerns Weighing on Dollar/Yen

The Dollar/Yen is edging lower in early Asian trade on Tuesday, hitting its lowest level since June 11 in the process. If the downside momentum continues then look for investors to challenge the June 8 bottom at 109.179. A move through this level could trigger an acceleration to the downside with the next major targets coming in at 108.114 and 107.998.

At 0530 GMT, the USD/JPY is trading 109.550, down 0.212 or -0.20%.

The catalyst behind the price action was an escalation of the trade war between the United States and its trade partners – China and the European Union. This caused investors to dump higher risk assets and move their money into the safe-haven Japanese Yen.

Holding traders in suspense at this time is last week’s threat by President Trump to impose a 10-percent tariff on $200 million in Chinese goods and China’s threat of retaliation. Additionally, Trump also raised the possibility of slapping a 20 percent charge on European cars.

U.S. stock investors were on edge Monday after a report in Sunday’s Wall Street Journal that said President Trump plans to bar several Chinese companies from making investment in U.S. technology. The WSJ went on to say that the Trump administration wants to block additional technology exports to China. Trump is expected to make the announcement later this week.

The news drove all the major U.S. stock indexes sharply lower early Monday especially the NASDAQ Composite that was drilled lower by a steep drop in technology stocks.

Late in the session, the USD/JPY rebounded a little after Treasury Secretary Steven Mnuchin called the Journal’s story “fake news” in a tweet. He also said, however, that the measure will impact not just China, but all countries.

However, during the final hour of stock market trading, Peter Navarro, a top trade adviser to President Trump, said on CNBC that investment restrictions against China and other countries are not immediately forthcoming and that the market was overreacting.

In other news, Bank of Japan board member Makoto Sakurai said on Monday the central bank needs to stick with its current easing framework to support improvements in the job markets and consumer prices.

Early Monday, BOJ policymakers said the central bank should “patiently continue” its powerful monetary policy easing but attention must be paid to the potential side effects of prolonged easy policy, a summary of opinions at the June review showed.

Forecast

Early Tuesday, the Japanese Services Producer Price Index (SPPI) came in as expected at 1.0%. Later today, investors will get the opportunity to react to the latest BOJ Core CPI report. It is expected to come in at 0.6%, up slightly from the previously reported 0.5%.

In the U.S. traders face a slew of fresh economic data including the S&P/CS Composite-20 HPI, which is expected to come in at 6.9%.

The major report is the Conference Board Consumer Confidence. Traders are looking for a read of 127.6, down slightly from 128.0.

The Richmond Manufacturing Index is expected to come in at 15, down slightly from 16. FOMC Member Bostic is also scheduled to speak. He could move the market if he talks about the impact of a trade war on economic growth and Fed monetary policy.

Overall, however, the direction of the USD/JPY is likely to continue to be influenced by investor appetite for risk and the direction of U.S. Treasury yields.