USD/JPY Fundamental Daily Forecast – Repricing Across All Asset Classes Should Boost Dollar/Yen

The Dollar/Yen is edging lower on Tuesday after posting a strong gain of nearly 2% the previous session. Investors dumped Japanese Yen and bought riskier currencies and the U.S. Dollar on Monday as market confidence in the global economy and world trade increased with progress on a COVID-19 vaccine announced by Pfizer.

At 08:00 GMT, the USD/JPY is trading 105.064, down 0.325 or -0.31%.

The USD/JPY soared on Monday after Pfizer Inc and its German partner BioNTech SE announced that their experimental COVID-19 vaccine was more than 90% effective in initial trial results in what experts said could be a turning point toward halting the pandemic.

Traders also said the announcement over the weekend that Democratic challenger Joe Biden had won enough electoral votes to be named president-elect also encouraged Japanese Yen buyers to unwind a massive amount of long positions. A Biden presidency is expected to shore up international trade through steady policies.

Jump in Treasury Yields Boosts US Dollar

The rally by the Dollar/Yen on Monday essentially came down to a surge in U.S. Treasury yields that made the greenback a highly desirable currency.

The yield on the 10-year Treasury note jumped 13 basis points to 0.95%. The benchmark rate touched a high of 0.975%, its highest level since March 20. The yield on the 30-year Treasury bond climbed 15 basis points to 1.742%.

Japan PM Suga Instructs Cabinet to Compile New Stimulus Package

Japanese Prime Minister Yoshihide Suga instructed his cabinet on Tuesday to compile a package of stimulus measures to revitalize an economy hit by the coronavirus pandemic, the country’s economy minister said. The move could weaken the Japanese Yen if enacted.

The package aims to cushion the blow from COVID-19, assist structural changes in the economy and boost productivity through digitalization, Economy Minister Yasutoshi Nishimura told a news conference after a regular cabinet meeting.

“We’ll want to consider government spending that will attract private investment,” Nishimura said, adding the government will compile the package as soon as possible.

Daily Forecast

The direction of the USD/JPY will be determined by trader demand for riskier assets and the movement in the Treasury yields. If global equity markets continue to rally on the vaccine news, bond markets will sell off as yields rise and that will cause a repricing across all asset classes, making the low-yielding Japanese Yen a less-attractive investment.

Traders should also monitor President Trump’s challenges to the outcome of the election. Although investors were reassured by Saturday’s news that Joe Biden had garnered enough votes to win the U.S. presidential election, U.S. stocks fell late in the session after U.S. Senate Majority Leader Mitch McConnell on Monday said President Trump was completely within his rights to look into “irregularities” from last week’s election.

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