USD/JPY Fundamental Daily Forecast – Renewed Demand for Safe-Haven Protection Pressuring Dollar/Yen

Safe-haven buying is helping to drive the Dollar/Yen lower on Wednesday. Treasury yields are down, making the dollar a less-attractive investment and stocks are under pressure, sending investors into the safety of the Japanese Yen. The catalyst behind the early weakness in the Forex pair is another defeat for British Prime Minister Theresa May’s Brexit deal.

At 02:28 GMT, the USD/JPY is trading 111.168, down 0.178 or -0.16%.

Weak U.S. Consumer Inflation Data Drives Yields Lower

The tightening of the spread between U.S. Government bonds and Japanese Government bonds helped drive investors out of the U.S. Dollar and into the Japanese Yen after U.S. government debt yields were pressured after the government reported mixed consumer inflation data on Tuesday.

According to the Labor Department, U.S. consumer prices rose for the first time in four months in February, but the pace of the increase was modest, resulting in the smallest annual gain in nearly 2-1/2 years.

The Consumer Price Index (CPI) increased 0.2 percent, boosted by gains in the cost of food, gasoline and rents. The CPI had been unchanged for three straight months.

In the 12 months through February, the CPI rose 1.5 percent, the smallest gain since September 2016. The CPI increased 1.6 percent on a year-on-year basis in January.

Excluding the volatile food and energy components, the CPI edged up 0.1 percent, the smallest increase since August 2018. The so-called core CPI had increased by 0.2 percent for five straight months.

In the 12 months through February, the core CPI rose 2.1 percent. The core CPI had increased by 2.2 percent for three consecutive months on an annual basis. Economists had forecast the CPI and the core CPI edging up 0.2 percent in February.

The weak data suggests the Fed is likely to keep interest rates on hold, forcing those investors betting on at least one rate hike in 2019 to reduce their short Treasury bond positions.

Daily Forecast

Global equity markets are under pressure early Wednesday amid renewed uncertainties after U.K. lawmakers again rejected the terms of a deal for Britain to withdraw from the European Union. This is driving investors into the safe-haven Japanese Yen, putting pressure on the USD/JPY.

In the U.S. later today, traders will get the opportunity to react to the latest data on Core Durable Goods Orders, Producer Price Inflation and Construction Spending.

Core Durable Goods Orders are forecast to have risen 0.1%, Durable Goods Orders are predicted to have fallen 0.5%. PPI and Core PPI are expected to have risen 0.2%. Construction Spending is forecast to have risen 0.4%.

Weaker-than-expected data should continue to put pressure on U.S. Treasury yields, which should be bearish for the USD/JPY. Additionally, further weakness in U.S. equity markets is likely to drive up demand for the safe-haven Japanese Yen.