USD/JPY Fundamental Daily Forecast – Recession Warnings Driving Demand for Safe-Haven Greenback

The Dollar/Yen is creeping higher on Wednesday as top executives from the biggest U.S. banks are warning of an impending recession, which is dampening risk appetite and enhancing the safe-haven appeal of the greenback.

Top bankers from JPMorgan Chase & Co, Bank of America and Goldman Sachs said overnight that the banks are bracing for a worsening economy next year, as inflation threatens consumer demand, Reuters reported.

At 06:20 GMT, the USD/JPY is trading 137.565, up 0.523 or +0.38%. On Tuesday, the Invesco CurrencyShares Japanese Yen Trust ETF (FXY) settled at $68.12, down $0.07 or -0.10%.

In domestic news, Bank of Japan board member Toyoaki Nakamura on Wednesday stressed the need to keep monetary policy ultra-loose to support an economy still recovering from the coronavirus pandemic-induced slump.

Major US Bankers Warn of Recession

The top ranking executives at the biggest U.S. banks are bracing for a worsening economy next year as inflation threatens consumer demand, Reuters reported. The news helped drive up demand for the safe-haven U.S. Dollar.

JPMorgan Chase & Co Chief Executive Jamie Dimon told CNBC that consumers and companies are in good shape, but noted that may not last much longer as the economy slows down and inflation erodes consumer spending power.

“Those things might very well derail the economy and cause this mild to hard recession that people are worried about,” he said.

Bank of America CEO Brian Moynihan told investors at a Goldman Sachs financial conference that the bank’s research shows “negative growth” in the first part of 2023, but the contraction will be “mild.”

The lender’s investment-banking fees will probably decline 55% to 60% in the fourth quarter from a year earlier, while trading revenue will likely rise 10% to 15%, Moynihan said.

Goldman Sachs CEO David Solomon added, “Economic growth is slowing. When I talk to our clients, they sound extremely cautious.”

BOJ Must Maintain Ultra-Easy Policy, Says Board Member Nakamura

“Tightening monetary policy at a time when demand continues to remain lower than supply would put huge pressure on corporate and household activity,” Nakamura said in a speech.

“Recent price rises aren’t accompanied by wage increases yet”, which means the central bank ought to keep monetary policy ultra-easy for the time being, he said.

Short-Term Outlook

Since the next major U.S. economic report is Friday’s producer price index (PPI), increasing recession fears are likely to drive the price action.

The bankers didn’t say it, but some traders fear the Fed is going to try to drive the economy into recession with a series of longer-than-expected rate hikes.

Furthermore, there is also uncertainty as to how high the Fed will be willing to go. Additionally, once rates hit the terminal level, traders aren’t sure how long the central bank will hold them there.

Too much uncertainty make the dollar an attractive investment as well as a hawkish Fed and a dovish Bank of Japan.