USD/JPY Fundamental Daily Forecast – ‘Risk-off’ Session Driving Investors Into Safe-Haven Assets

Lower Treasury yields and a drop in demand for higher-risk assets are helping to drive the Dollar/Yen lower on Monday as a report surfaced saying China wants to continue trade talks before signing ‘phase one’ of the partial trade deal announced on Friday by President Trump.

Despite Friday’s stock market rally and the shedding of safe-haven assets like Treasury Bonds, Gold, U.S. Dollar and Japanese Yen, the reaction by investors to the announcement of the trade deal was muted with most of the price action being fueled by the rumor than the fact. This may have been the first sign of a lack in confidence in the initial agreement.

At 11:52 GMT, the USD/JPY is trading 108.209, down 0.218 or -0.20%.

Analysts Didn’t Like Deal from Start

Morgan Stanley says President Trump’s partial deal with China is an “uncertain” arrangement at best and there does not appear to be a viable path to reduce existing tariffs at the moment.

Without a durable dispute settlement mechanism in place, another round of tariff increases cannot be ruled out, according to Morgan Stanley.

“There is not yet a viable path to existing tariffs declining, and tariff escalation remains a meaningful risk,” the bank said in a note. “Thus, we do not yet expect a meaningful rebound in corporate behavior that would drive global growth expectations higher.”

Evercore wrote in a note, “Trump’s statement that ‘We are near the end of the trade war’ is not plausible to us. We do not expect tariff cuts in 2020 – but are ready to be favorably surprised. And as long as such punitive tariffs remain, we would describe US-China economic relations as bad, not good.”

Daily Forecast

A “risk off” day on Monday should keep the pressure on the USD/JPY. This is already being fueled by a report from Bloomberg News that said China needed to have further discussions before it would sign off on the so-called “phase one” trade deal President Donald Trump announced on Friday.

Traders will also be watching for a reaction from President Trump to the Bloomberg news, since he has a tendency to overreact to situations like we have at this time.

Furthermore, investors aren’t sure if his means the previously suspended tariffs that were supposed to kick in on October 15 are back in play. The USD/JPY could plunge if Trump says “yes” to the new tariffs. This will also likely lead to retaliation by China with additional tariffs.