USD/JPY Fundamental Daily Forecast – Repatriation, Safe-Haven Buying Driving Investors into Yen

The Dollar/Yen is trading lower early Monday. Some of move is related to flight-to-safety buying related to a drop in U.S. Treasury yields and weaker U.S. stock prices. These moves are being fueled by worries over a potential trade war between the U.S. and China.

At 0533 GMT, the USD/JPY is trading 110.476, down 0.186 or -0.17%.

Some of the selling in the Dollar/Yen is related to repatriation due to the strong earthquake that hit the western Japanese city of Osaka. When natural disasters hit Japan, investors feel it is their duty to send money back home. This move is generating the downside momentum in the USD/JPY early Monday.

Technically, the main trend is up. However, the USD/JPY is having trouble with a Fibonacci level at 110.859. Taking out last week’s high at 110.905 will signal a resumption of the uptrend. This could create the upside momentum needed to overtake the May 21 main top at 111.396.

A trade through 109.910 will shift momentum to the downside. This could bring in more sellers. Taking out 109.179 will change the main trend to down.

The next move in the USD/JPY will be determined by the extent of the damage from the earthquake and the price action in the U.S. equity markets.

The most bearish scenario for the USD/JPY will be major damage from the earthquake and a steep sell-off in U.S. equity markets related to trade war concerns. This should trigger a strong flight to safety response from investors.

Repatriation and a rapid turnaround in the stock market could neutralize the USD/JPY.

Minimal damage from the earthquake and a rebound in the stock should trigger a reversal to the upside by the USD/JPY.

Longer-term, the odds still favor a bullish Dollar/Yen because of the widening divergence between the monetary policies of the hawkish U.S. Federal Reserve and the dovish Bank of Japan. Last week, the Fed raised rates and said it could raise rates at least two more times before the end of the year. The Bank of Japan kept rates unchanged at its meeting on Friday and said it remains concerned over low inflation.

Early Monday, Japan reported that its trade balance came in below the 0.14T estimate at -0.30T.

Looking ahead to Monday’s U.S. trade, at 1400 GMT, traders will get the opportunity to react to the NAHB Housing Market Index. Later in the session at 1700 GMT, Federal Open Market Committee member Raphael Bostic speaks. This is followed by a speech from FOMC member John Williams at 2000 GMT. Both are not expected to talk about policy.