USD/JPY Fundamental Daily Forecast – Powell Comments on Fed Policy Should Set the Tone

Last week, Powell and the Fed policymakers signaled an end to its drive to tighten monetary policy due to concerns over slowing domestic and global economic growth. Since then the U.S. has released blowout jobs and factory data. Investors want to know if Fed policy will be swayed by this news.
James Hyerczyk

The Dollar/Yen recovered from early session weakness to finish flat for the session on Wednesday. The early weakness was fueled by lower Treasury yields and safe-haven buying. The Forex pair mounted a turnaround to recover the losses after the release of better-than-expected U.S. Trade Balance data. Traders are now awaiting a speech from Fed Chair Jerome Powell at 24:00 GMT. Powell could move the Dollar/Yen because he is expected to address monetary policy.

At 22:43 GMT, the USD/JPY is trading 109.982, up 0.006 or +0.01%.

The Japanese Yen found some support early Wednesday as a safe haven after U.S. President Donald Trump repeated his promise to build a border wall in his State of the Union address, raising the prospect of another U.S. government shutdown.

Traders are also waiting for signs of a resolution in U.S.-China trade talks, while keeping an eye on the Federal Reserve’s monetary policy. On Wednesday, U.S. Treasury Secretary Steven Mnuchin said that he and other U.S. officials will travel to Beijing next week for trade talks.

Fed policy concerns continue to exert the most influence on the USD/JPY. Last week, this fueled a two-sided trade in the Forex pair. The Dollar/Yen weakened on January 30 when the Fed left interest rates unchanged as expected while issuing a dovish Fed statement. In its statement, the Fed said it would exercise “patience” when deciding on future rate hikes.

Market perception changed on Friday, however, following the release of a robust U.S. Non-Farm Payrolls and stronger-than-expected ISM Manufacturing PMI report. This drove U.S. Treasury yields higher while making the U.S. Dollar a move attractive investment.

On Wednesday, the USD/JPY was able to recover from early weakness after a report showed the U.S. trade deficit with its global partners fell in November for the first time after five straight months of increases as the shortfall with China and several other countries declined.

A release from the government Wednesday showed the gap had closed in November, the most recent month for which data was available, to $49.3 billion from $55.7 billion in October, representing an 11.5 percent decline. Economists were looking for a deficit of $54.3 billion.

This increase is important because it will serve as a boost to fourth-quarter GDP, which is expected to show a 2.5 percent increase, according to CNBC.

Daily Forecast

At 24:00 GMT, Fed Chair Jerome Powell is scheduled to give a speech at a town hall meeting with teachers in Washington, DC. He is expected to talk about monetary policy which means this could be a market moving event.

Last week, Powell and the Fed policymakers signaled an end to its drive to tighten monetary policy due to concerns over slowing domestic and global economic growth. Since then the U.S. has released blowout jobs and factory data. Investors want to know if Fed policy will be swayed by this news.

Since the data was released last Friday, the USD/JPY has strengthened as investors reduced the chances of a Fed rate cut with some pricing in at least one rate hike before the end of the year.

Don't miss a thing!
Discover what's moving the markets. Sign up for a daily update delivered to your inbox

Latest Articles

See All

Expand Your Knowledge

See All
The content provided on the website includes general news and publications, our personal analysis and opinions, and contents provided by third parties, which are intended for educational and research purposes only. It does not constitute, and should not be read as, any recommendation or advice to take any action whatsoever, including to make any investment or buy any product. When making any financial decision, you should perform your own due diligence checks, apply your own discretion and consult your competent advisors. The content of the website is not personally directed to you, and we does not take into account your financial situation or needs.The information contained in this website is not necessarily provided in real-time nor is it necessarily accurate. Prices provided herein may be provided by market makers and not by exchanges.Any trading or other financial decision you make shall be at your full responsibility, and you must not rely on any information provided through the website. FX Empire does not provide any warranty regarding any of the information contained in the website, and shall bear no responsibility for any trading losses you might incur as a result of using any information contained in the website.The website may include advertisements and other promotional contents, and FX Empire may receive compensation from third parties in connection with the content. FX Empire does not endorse any third party or recommends using any third party's services, and does not assume responsibility for your use of any such third party's website or services.FX Empire and its employees, officers, subsidiaries and associates, are not liable nor shall they be held liable for any loss or damage resulting from your use of the website or reliance on the information provided on this website.
This website includes information about cryptocurrencies, contracts for difference (CFDs) and other financial instruments, and about brokers, exchanges and other entities trading in such instruments. Both cryptocurrencies and CFDs are complex instruments and come with a high risk of losing money. You should carefully consider whether you understand how these instruments work and whether you can afford to take the high risk of losing your money.FX Empire encourages you to perform your own research before making any investment decision, and to avoid investing in any financial instrument which you do not fully understand how it works and what are the risks involved.