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USD/JPY Fundamental Daily Forecast – Price Could Surge if ADP Jobs Data Beats Forecast

By:
James Hyerczyk
Published: Sep 2, 2020, 09:18 UTC

The growing likelihood that Yoshihide Suga will succeed Shinzo Abe as Japan’s new premier may be a mixed blessing for the country’s central bank.

USD/JPY

The three-day rally in the Dollar/Yen is beginning to pick up some momentum early Wednesday after the dollar bounced off two-year lows on Tuesday in response to stronger than expected U.S. manufacturing data.

The price action also suggests that worries about the country that led to a steep sell-off on Friday after Prime Minister Shinzo Abe’s surprise resignation announcement are over, with investors already beginning to price in a victory for Chief Cabinet Secretary Yoshihide Suga.

At 08:47 GMT, the USD/JPY is trading 106.147, up 0.189 or +0.18%.

US Factory Activity Accelerates as Orders Jump to More than 16-1/2-Year High

The USD/JPY is being underpinned for a second session after a report showed on Tuesday that U.S. manufacturing activity increased more than expected in August as new orders surged to their highest level in over 16-1/2 years. The numbers were good, but there are still some concerns because employment at factories continued to lag amid safety restrictions intended to slow the spread of COVID-19.

The upbeat report from the Institute for Supply Management (ISM) strengthened expectations for a sharp rebound in economic activity this quarter, though the outlook is uncertain as money from the government dries up. Manufacturing is not out of the woods yet as the coronavirus crisis lingers.

The ISM said manufacturers described sentiment as “generally optimistic, though to a lesser degree compared to July.”

Suga as Japan’s Next Premier May Be Tough Partner for Bank of Japan

The growing likelihood that Yoshihide Suga will succeed Shinzo Abe as Japan’s new premier may be a mixed blessing for the country’s central bank.

As Abe’s key lieutenant and the government’s top spokesman, Suga is a safe pair of hands and has a thorough of the Bank of Japan’s policy framework, but he also knows how to pressure the bank into action.

Suga, in particular, could maintain the status quo if he takes the helm, given the key role he played in pushing through “Abenomics”, which sought to spur growth with bold monetary easing, fiscal spending and structural reforms.

However, armed with a strong grip on Tokyo’s bureaucracy and a deep knowledge of Abe’s economic policies, Suga may prove to be a tough negotiator for the BOJ if conditions worsen, as it struggles to battle economic headwinds with a dwindling toolkit.

In an interview with Reuters last week, Suga stressed the need for the BOJ to work hand in hand with the government, signaling his hope that the central bank will continue to assist government efforts to support growth.

Daily Forecast

The focus today for investors will be on the movement in Treasury yields and the U.S. Dollar. Both are likely to be influenced mostly by the ADP Non-Farm Employment Change report, due to be released at 12:15 GMT. It is expected to show the private sector of the economy added 1250K jobs in August.

Traders will also have the opportunity to react to the latest data on Factory Orders and East Coast manufacturing in the Fed Beige Book.

FOMC Members Williams and Mester are also scheduled to speak. They may try to clarify the Fed’s new policy to allow inflation to rise above the 2% mandate.

For a look at all of today’s economic events, check out our economic calendar.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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