USD/JPY Fundamental Daily Forecast – Rising Yields, Risk Appetite Supportive Ahead of BOJ Meeting

The Dollar/Yen is trading higher on Thursday, reversing yesterday’s weakness. Increased demand for risk is helping to dampen the Japanese Yen’s appeal as a safe-haven asset and rising U.S. Treasury yields are making the U.S. Dollar a more attractive investment. The move are being fueled by positive developments over Brexit and solid U.S. economic data.

At 06:35 GMT, the USD/JPY is trading 111.550, up 0.415 or +0.37%.

Most of the major global stock indexes are trading higher Thursday following Wall Street’s solid performance the previous session. The catalyst is the news that British lawmakers rejected the idea of leaving the European Union without a Brexit deal in place.

Investors bought stocks aggressively in Asia after U.K. lawmakers rejected the idea of leaving the EU without a deal in place under any circumstance. The news seemed to catch traders by surprise, especially those who were betting on the worst outcome with short positions. Initially, Prime Minister Theresa May’s government had asked Parliament to vote on ruling out a no-deal Brexit for the official March 29 deadline.

Wednesday brought more good news for U.S. stock market investors as encouraging news for future growth, a key category that tracks business investment plans posted its biggest gain in six months. The Commerce Department also said that orders for durable goods rose 0.4 percent in January.

Additionally, U.S. construction spending surged in January, with investment in public projects rising to a more than eight-year high, which could boost economic growth estimates for the first quarter. This news largely offset weaker than expected producer inflation data.

This week’s data has been just strong enough to indicate the economy still has a pulse despite talk of a global economic slowdown. But just weak enough to keep the Fed at bay with its “patient” approach. This is generally good news for U.S. stock market investors.

Daily Forecast

Demand for risk could continue to increase on Thursday if the positive developments continue over Brexit. The next step for lawmakers will be to seek an extension to Article 50, which oversees the withdrawal process from the EU, and thus extends the departure date beyond the March 29 deadline. Members will vote on this issue on Thursday evening. After hearing arguments from U.K. politicians on why they are requesting the delay, European Union officials could accept or reject this proposal. This decision should also be another source of heightened volatility for investors.

In other news, investors will get the opportunity to react to the latest U.S. data on Import Prices, Weekly Unemployment Claims and New Home Sales.

Early Friday, the Bank of Japan is widely expected to leave its benchmark interest rate unchanged. Reuters is also reporting that it is considering a slight downgrade to its assessment of the economy in its monthly report for March as exports and factory output fell due to slowing demand from China.