USD/JPY Fundamental Daily Forecast – Risk Sentiment, Fed Tapering Uncertainty Driving Price Action

The Dollar/Yen is trading flat on Thursday, mirroring the price action in the U.S. equity markets, following a test of its lowest level since August 4 the previous session. The price action suggests the Forex pair is being influence by the carry trade and the direction of U.S. Treasury yields.

At 08:35 GMT, the USD/JPY is trading 109.369, down 0.004 or -0.00%.

The Forex pair’s gains are likely being capped by the lack of clarity over the timing of the Fed’s plans to begin tapering its massive stimulus program. The USD/JPY has been under pressure since Tuesday’s U.S. Consumer Price Index report can in lower-than-expected. This suggests that the rise in consumer prices may have crested, reducing the urgency by the Fed to begin reeling in some of its asset purchases that have been in place since the pandemic began in March 2020.

Traders are also saying that the Japanese Yen’s strong performance on Wednesday may have been helped by foreign flows into Japanese stocks, with the Nikkei reaching a multi-decade high this week, as well as traders covering of short positions.

Japan Tertiary Industry Report Shows Activity Fell in July

Japan’s tertiary activity declined in July after rising in the previous month, data from the Ministry of Economy, Trade and Industry showed on Wednesday.

The tertiary activity index fell 0.6 percent month-to-month in July, after 2.2 percent increase in June.

Among the individual components, medical, health care and welfare, retail trade, transport and postal activities, business-related services, real estate, electricity, gas, heat supply and water, information and communications, and goods rental and leasing declined in July.

Meanwhile, living and amusement-related services, wholesale trade, and finance and insurance increased.

On a yearly basis, tertiary activity rose 2.0 percent in July, after a 2.9 percent growth in the previous month.

Japan’s Hot Exports Growth Cools as COVID-19 Hits Supply Chains

Japan’s exports extended double-digit gains in August, led by strong shipments of chip manufacturing equipment, although the pace of growth weakened as COVID-19 hit key Asian supply chains and slowed factory production, Reuters reported.

The trade growth is unlikely to dispel worries about the outlook for Japan’s economy, which has not yet recovered to pre-pandemic levels after taking an enormous hit from a collapse in global trade in the first quarter of 2020.

Exports rose 26.2% in August compared with the same month a year earlier, the Ministry of Finance said on Thursday, marking the sixth straight month of double-digit growth as strong demand for chip-making equipment offset slowing U.S. and European Union-bound shipments of cars.

However, the growth was slower than the 34% expected by economists in a Reuters poll and the 37.0% advance in the previous month.