USD/JPY Fundamental Daily Forecast – Risk Appetite Will Dictate Direction Today

The Dollar/Yen is trading lower early Friday, but coming back to nearly unchanged after an earlier setback drove the Forex pair to 106.986. The move likely indicates that today’s session will be volatile and may feature a two-sided trade.

At 0509 GMT, the USD/JPY is trading 107.337, down 0.039 or -0.04%.

The current price action suggests investors may be taking the usual precautionary position adjustments ahead of the U.S. Non-Farm Payrolls report, but also keeping an eye on the developing trade war between the United States and China.

The Non-Farm Payrolls report due out at 1230 GMT is important because a substantial headline number, and wage growth could drive the U.S. Federal Reserve to act more quickly in raising interest rates.

The NFP report is expected to show the U.S. economy added 188K new jobs in March. This is substantially lower than the previously reported 313K. Earlier in the week, ADP reported the private sector added 241K jobs last month so there may be some volatility in the NFP report number.

Average Hourly Earnings are expected to jump 0.3% versus the previously reported 0.1%. This number is important to the Fed because it indicates inflation. The higher the percentage change, the greater the chances the Fed will stick with its aggressive strategy to raise rates at least 2 more times this year.

The escalating trade war between the U.S. and China was at the forefront early Friday after U.S. President Donald Trump said he had instructed U.S. trade officials to consider $100 billion in additional tariffs on China.

Trump said in a statement on Thursday that further tariffs were being considered “in light of China’s unfair retaliation” against earlier U.S. trade actions that have triggered volatile responses in the global financial markets.

After Trump’s latest announcement, the Japanese Yen rallied against the U.S. Dollar as investors sought shelter in the safe haven currency amid weakness in the global equity markets.

The direction of the USD/JPY today will be determined by whether investors decide to focus on the trade war or the non-farm payroll data. In my opinion, the NFP will have a short-term impact on the Dollar/Yen with the direction of the Forex pair largely determined by investor demand of risky assets.