USD/JPY Fundamental Daily Forecast – Rising Treasury Yields, Firm Demand for Risk Weighing on Dollar/Yen

The Dollar/Yen is being boosted on Friday by strong U.S. Dollar sentiment driven by safe-haven buying amid the political tension in the United States and a more positive outlook for U.S.-China trade relations. Furthermore, traders are also beginning to price in further stimulus from the Bank of Japan at its October 30-31 policy meeting.

At 10:59 GMT, the USD/JPY is trading 108.100, up 0.257 or +0.24%.

The support for the Forex pair is being driven by rising U.S. Treasury yields and increasing demand for higher-yielding assets.

China Trade Talks Set to Resume October 10

Following the U.S. stock market close on Thursday, CNBC reported trade talks between the U.S. and China were set to resume October 10-11 in Washington, D.C., according to three people close to the talks. Chinese Vice Premier Liu He will be representing the delegation from Beijing, one of the people told CNBC.

The White House, the Treasury Department and the Office of the U.S. Trade Representative did not respond to CNBC’s requests for comment before publication. This isn’t a big deal. Perhaps they had nothing to say since the Trump administration said weeks ago they expected the talks with Beijing, which stalled out in May, to resume next month.

I believe investors will find out if the trade negotiations were successful if they watch how Trump handles the postponed tariffs.

If he decides to further delay the tariffs then this will send a signal that progress was made at the negotiation table.

If Trump moves forward with the tariffs on October 15 then this will complicate matters since it will indicate that both sides are still far apart and Trump feels China needs to continue to feel pressure in order to finish a deal in a timely manner.

A further delay in tariffs should be bullish for stocks. An escalation of tariffs should be bearish.

Kuroda and the Bank of Japan

On Thursday, Japan’s central bank governor signaled readiness to ease monetary policy further, vowing to guide policy appropriately “without any preset conditions in mind”.

Speaking before leaders of Japan’s securities industry, Haruhiko Kuroda also warned against heightening risks from the global economy but dropped few clues on exactly what the BOJ’s next move will be when it holds its policy review on October 30-31.

Daily Forecast

Early Friday, Japan reported Tokyo Core CPI came in lower than expected at 0.5%. Analysts were looking for 0.6%. This was down from the previously reported 0.7%. This news further supports the need for additional stimulus.

Later on Friday, investors will get the opportunity to react to a slew of U.S. economic reports including Core Durable Goods Orders which is expected to come in at 0.2% and Durable Goods Orders which are expected to have declined by 1.1%.

Personal Spending is expected to have risen 0.3%, Core PCE Price Index is forecast to come in at 0.2% and Personal Income is forecast to have risen 0.4%.

A revised University of Michigan Consumer Sentiment report is called unchanged at 92.0.

Strong U.S inflation, spending and consumer sentiment data will support the idea that the Fed will pass on an October rate cut, while leaving open the possibility of a December rate reduction.

The price action in the Dollar/Yen on Friday will be primarily driven by the direction of Treasury yields and the stock market.