USD/JPY Fundamental Daily Forecast – “Risk-Off” Trade Bearish for Dollar/Yen

It’s a “risk-off” session on Friday and the Dollar/Yen is plunging as investors sought shelter in the safe-haven Japanese Yen. Helping to drive the Forex pair lower is another steep drop in Treasury yields and a drop in demand for risky assets.

The catalyst behind the price action is the Trump administration’s move to escalate its trade war with other countries. Late Thursday, Washington unexpectedly said it will slap tariffs on all goods coming from Mexico.

At 06:38 GMT, the USD/JPY is trading 108.950, down 0.677 or -0.62%.

According to the detail, the United States will impose a 5% tariff on all goods coming from Mexico from June 10 until illegal immigration is stopped.

Imposing these tariffs is in principle, not allowed under the free trade agreement currently in place between Mexico and the United States or under WTO general frameworks, but Trump is likely to claim he made the move as a matter of national security.

U.S. Economic News

The USD/JPY traded steady to higher on Thursday as yields rose along with stocks, creating a slight “risk-on” tone. U.S. Preliminary GDP came in as expected at 3.1%. Goods Trade Balance also hit the forecast at -72.1 Billion. Preliminary Wholesale Inventories rose 0.7%, higher than expected. Not good news as it indicated a build-up of inventories. Weekly Unemployment Claims also matched the forecast. However, Pending Home Sales missed the mark with a 1.5% decline.

Japan Economic News

Friday’s economic news from Japan was mixed. Tokyo Core CPI came in at 1.1%, missing the 1.2% forecast. The Unemployment Rate was steady at 2.4%. Preliminary Industrial Production rose 0.6%, better than the 0.2% forecast. The previous month was revised higher at -0.6%. Retail Sales rose a disappointing 0.5% versus a 1.0% estimate.

Japanese Consumer Confidence dropped to 39.4 from 40.6 and Housing Starts fell 5.7%. The estimate was for a 0.8% drop. Last month, they were up 10%.

Daily Forecast

Look for the USD/JPY to continue to weaken if today remains a “risk-off” session. There is U.S. economic data, but I doubt even better than expected numbers will take on more importance than the new tariffs against Mexico and the escalation of the global trade war.

Trading conditions could actually worsen for the Dollar/Yen if the U.S. inflation data comes in lower than expected. A drop in personal spending and personal income could also indicate the economy is weakening. A miss in Consumer Sentiment will also be bearish.