USD/JPY Fundamental Daily Forecast – Pressure from Lower Yields, Risk Appetite Likely to Continue

The USD/JPY is likely to continue to lose ground if Treasury yields continue to drop and selling pressure continues to drive stock prices lower. Concerns over U.S.-China trade relations are likely to put the most pressure on equities since a deal appears to be at least a month away. In the meantime, it looks as if investors are beginning to grow weary of the constant positive chatter about a potential deal.
James Hyerczyk
USD/JPY

The Dollar/Yen is trading lower early Friday on safe-haven buying. The move is being fueled by another drop in U.S. Treasury yields and weakening demand for higher risk assets. On Thursday, the Forex pair fell in response to the same factors. The catalysts behind the selling were increased worries over a global economic slowdown and renewed concerns over U.S.-China trade relations.

At 01:23 GMT, the USD/JPY is trading 109.702, down 0.120 or -0.11%.

U.S. Treasury Yields Drop

On Thursday, U.S. Treasury yields fell as fears of a slowdown in the global economy encouraged investors to seek shelter in the safe-haven asset. Yields were under pressure early in the session after dovish comments from Federal Reserve Chairman Jerome Powell the night before. Powell, speaking at a town hall meeting in Washington said, that the biggest challenges to the U.S. economy are sluggish productivity and a widening wealth gap.

Lower Treasury yields tightened the spread between U.S. Government bonds and Japanese Government bonds, helping to make the U.S. Dollar a less-attractive investment.

European Commission Lowers Growth Outlook

The Dollar/Yen continued to retreat later in the session after the European Commission revised its growth outlook for the Euro Zone this year as global trade tensions and other headwinds threaten to undermine the trading bloc’s largest economies. The Commission sees Euro Zone growth slowing to 1.3 percent this year from 1.9 percent in 2018.

Renewed Concerns Over U.S.-China Trade Relations

Renewed fears over a U.S.-China trade deal triggered a steep drop in U.S. equity markets, driving investors into the safety of the Japanese Yen.

The selling was triggered when White House economic advisor Larry Kudlow said China and the U.S. were still far away on striking a trade deal. “We’ve got a pretty sizable distance to go here,” Kudlow told Fox Business. The sell-off was extended later in the session after CNBC reported through a source that a meeting between the two leaders was “highly unlikely.”

Daily Forecast

The USD/JPY is likely to continue to lose ground if Treasury yields continue to drop and selling pressure continues to drive stock prices lower. Concerns over U.S.-China trade relations are likely to put the most pressure on equities since a deal appears to be at least a month away. In the meantime, it looks as if investors are beginning to grow weary of the constant positive chatter about a potential deal.

Every major central bank has now warned about economic weakness with some strongly suggesting cuts in their benchmark interest rates. This is likely to continue to make the Japanese Yen an attractive investment.

Please let us know what you think in the comments below. 

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