USD/JPY Fundamental Daily Forecast – Renewed Fears Over Trade Talks, Government Shutdown Drive Investors into Safe-Haven Yen

Setting aside Trump’s rhetoric, the USD/JPY is essentially trading lower due to a drop in U.S. Treasury yields. This is helping to tighten the spread between U.S. Government bonds and Japanese Government bonds, which is making the U.S. Dollar a less-desirable asset.
James Hyerczyk

The Dollar/Yen is trading lower on Wednesday as safe-haven buying drew investors into the Japanese Yen. Although some market participants are calling President Trump’s State of the Union address a “dud”, Dollar/Yen traders seem to be leaning to the negative side. Trump didn’t say much to excite the bulls in the stock market, but may have stoked some fears as he vowed to build a wall between the U.S. and Mexico border.

At 09:15 GMT, the USD/JPY is trading 109.582, down 0.383 or -0.35%.

Trump continued to push for the building of the wall despite huge opposition from the Democrats. He said the border wall was needed to stem illegal immigration and smuggled drugs, but stopped short of declaring the issue a national emergency. In continuing to talk about building the wall, Trump raised concerns over the risk of another government shutdown. This was enough to send investors into the safety of the Japanese Yen.

Trump also offered little clarity over the on-going trade negotiations between the U.S. and China, which ended last week. After offering upbeat comments at the end of the discussions, Trump failed to follow-through on Monday with similar comments.

In his speech, Trump said any trade agreement with China “must include real, structural change to end unfair trade practices, reduce our chronic trade deficit, and protect American jobs.”

Finally, Trump also briefly mentioned budge issues, but provided investor few surprises, leading to early session weakness in the stock market.

Daily Forecast

Setting aside Trump’s rhetoric, the USD/JPY is essentially trading lower due to a drop in U.S. Treasury yields. This is helping to tighten the spread between U.S. Government bonds and Japanese Government bonds, which is making the U.S. Dollar a less-desirable asset.

Look for the pressure to continue on the Dollar/Yen as long as rates continue to fall. Further weakness in the stock market should encourage investors to step up demand for the safe-haven Japanese Yen.

On the data front, traders will get the opportunity to react to the latest news on U.S. Preliminary Nonfarm Productivity, Preliminary Unit Labor Costs and the Trade Balance. The latter is expected to come in at -54.0 billion, slightly better than the previously reported -55.5 billion.

Late in the day, FOMC Member Quarles will speak, followed by Fed Chair Jerome Powell. Traders will be looking to hear if Powell changes his tune a little about a weakening economy in light of Friday’s blow-out jobs report.

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

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