USD/JPY Fundamental Daily Forecast – Risk Appetite, Economic News, Fed Minutes – Key Price Drivers Today

The Dollar/Yen is inching higher early Wednesday as renewed demand for risky assets weighs on the safe-haven Japanese Yen. Position-squaring ahead of tomorrow’s release of the latest Fed minutes and a slew of U.S. economic data may also be helping to generate some short-covering activity. Early Thursday, Bank of Japan Governor Kuroda is also scheduled to speak.

At 0413 GMT, the USD/JPY is trading 112.304, up 0.059 or +0.05%.

Helping to set the table for Tuesday’s 0.42% gain was reduced demand for the safe-haven Japanese Yen. This move was led by the sharp rise in U.S. equity markets. Stocks rose on Tuesday after the release of strong quarterly results from some of the largest U.S. companies helped the market recover from last week’s sell-off. This encouraged Japanese Yen buyers to sell out of a portion of their safe-haven buys.

In economic news, U.S. industrial production increased for a fourth straight month in September, boosted by gains in manufacturing and mining output, but momentum slowed sharply in the third quarter.

Capacity utilization for the industrial sector, a measure of how fully firms are using their resources, was unchanged at 78.1 percent. It is 1.7 percentage points below its 1972-to-2017 average.

Job openings hit a record in August, indicating companies could face more inflationary pressures ahead with a tight labor market. The vacancies level hit 7.14 million for the month, according to the Job Openings and Labor Turnover Survey (JOLTS), a report Federal Reserve officials watch closely for clues about where employment stands. The total number of hires also reached a record of 5.78 million.

Forecast

Demand for risk, economic reports and the Fed minutes should dictate the direction of the USD/JPY on Wednesday.

Increased demand for risky assets should underpin the USD/JPY since it will likely encourage investors to lift safe-have buys of the Japanese Yen placed last week.

Strong U.S. economic data and hawkish Fed minutes should be bullish for Treasury yields which will make the U.S. Dollar a more attractive investment.

U.S. Building Permits are expected to come in at 1.27 million units. This will be up slightly from 1.25 million units. Housing Starts are forecast at 1.22 million units, down from 1.28 million units.

The Fed is scheduled to release the minutes of its September meeting at 1800 GMT. Traders will be looking for more details as to the pacing of the central bank’s future rate hikes. At the meeting, the Fed increased its benchmark rate by 25 basis points, while hinting at a similar move in December. The central bank also said it could increase rates at least three times in 2019 and perhaps once more in 2020.

One thing that traders don’t expect the minutes to reflect is last week’s rapid rise in U.S. Treasury yields and its negative impact on the stock market.