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James Hyerczyk
USD/JPY

The Dollar/Yen continues to consolidate for a sixth day on Thursday. Although the Fed’s decisions on Wednesday were bearish for the U.S. Dollar, the price action suggests investors are holding out hope for a U.S.-China trade deal, and/or a delay in the new tariffs scheduled to start on December 15.

At 10:01 GMT, the USD/JPY is trading 108.683, up 0.124 or +0.11%.

The Fed news was bearish for the dollar because policymakers said they wouldn’t raise rates in 2020. Hope for a trade deal or the tariff delay is underpinning demand for risky assets, which is potentially bearish for the Japanese Yen.

Japanese Economic News

The domestic data continues to point toward a weakening economy. Although Final GDP came in higher than the forecast at 0.4%, Economy Watchers Sentiment, BSI Manufacturing Index, and Core Machinery Orders came in below expectations.

Early Thursday, Japan’s core machinery orders unexpectedly fell 6.0% month-on-month in October, down for the fourth straight month, government data showed on Thursday.

The fall in core orders, a highly volatile data series regarded as an indicator of capital spending in the coming six to nine months, compared with the median estimates of a 0.9% rise in a Reuters poll of economists.

Compared with a year earlier, core orders, which exclude those of ships and electricity, fell 6.1% in October, versus a 1.8% drop seen by economists, the Cabinet Office data showed.

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Fed Keeps Rates Unchanged, Signals No Policy Change Through at Least 2020

The U.S. Federal Reserve kept interest rates unchanged on Wednesday, following three decreases in a row. The central bank also indicated it does not expect any policy changes through at least 2020.

Fed Chair Jerome Powell said in a news conference the central bank would have to see a persistent rise in inflation before hiking rates once again. The Fed had to cut rates multiple times this year to make up for raising rates too far at the end of 2018, a move that slowed the economy and caused stock prices to drop.

Reuters:  White House to Debate US-China Tariffs

U.S. President Donald Trump is expected to meet with top trade advisors on Thursday to discuss planned December 15 tariffs on some $160 billion in Chinese goods, three sources familiar with the plans said, according to Reuters, as markets braced for potential negative impacts.

The senior advisors are expected to present divergent views during the high-stakes meeting, but the final decision will be up to Trump, the sources said.

Daily Forecast

With the Fed out of the way, the main focus for investors will be on whether Trump decides to slap the Chinese with fresh tariffs on December 15, or if he decides to delay the move in the hopes of a short-term trade deal.

Implementing the tariffs could drive the stock markets sharply lower, which would increase demand for the safe-haven Japanese Yen. Moving closer to a trade deal by delaying the tariffs would increase demand for risky assets. This would likely send the USD/JPY higher.

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