USD/JPY Fundamental Daily Forecast – Safe-Haven Demand Pressuring Dollar/Yen

Safe-haven demand drove the Dollar/Yen lower on Thursday as investors reacted to a steep sell-off in U.S. equity markets and a drop in U.S. Treasury yields. The catalysts behind the moves were increased worries over the trade conflict between the US and China, and weaker-than-expected U.S. manufacturing data.

On Friday, these two factors are likely to continue to drive the price action along with the outcome of the OPEC meeting in Vienna.

The Dollar/Yen relationship has been volatile all week after President Trump requested the United States Trade Representative to identify $200 billion worth of Chinese goods late Monday, for additional tariffs at a rate of 10 percent.

Trump’s request for additional tariffs follows aggressive moves by both economic powerhouses last week. Beijing again reacted to Trump’s statement by pledging to retaliate with additional tariffs on U.S. goods of their own.

The Dollar/Yen came off its high on Thursday after the Philadelphia Federal Reserve’s gauge of U.S. Mid-Atlantic business activity fell to near a 1 ½ year low.

The Philly Fed report said business activity fell from 34.4 in May to 19.9 in June, its lowest since November 2016. The index’s sharpest drop since January. Some traders said the Philly Fed miss to the downside was a convenient excuse for Dollar/Yen bulls to book profits after hitting technical resistance.

Forecast

The Dollar/Yen is trading nearly flat early Friday. There was some data from Japan, but it had no effect on the trade. Most traders are watching U.S. Treasury yields and the global stock indexes. The stories that traders are paying the most attention to are renewed trade concerns, U.S. PMI data and the outcome of the OPEC meeting.

At 0627 GMT, the USD/JPY is trading 109.985, up 0.015 or +0.01%.

Earlier in the session, Japan’s National Core CPI was 0.7% again. Japan Flash Manufacturing PMI rose to 53.1, beating the 52.6 estimate and Japan All Industries Activity was up 1.0%, better than the 0.9% forecast.

Traders are not paying attention to the Japanese data because the Bank of Japan has basically told them nothing matters until inflation hits their target, and they don’t think it will for a long time. A subtle change in PMI is not enough to get Japanese Yen investors excited with inflation so weak.

The major reports from the U.S. that should move the markets on Friday are Final Manufacturing PMI and Flash Services PMI, due to be released at 1345 GMT.

Final Manufacturing PMI is expected to come in at 56.3, slightly below the previously reported 56.4. Flash Services PMI is forecast at 56.4, down from the previously reported 56.8.

The biggest influences on the USD/JPY today will be any fresh tariff threats from the U.S. or China, U.S. economic data and the outcome of the OPEC meeting in Vienna. Keep an eye on the Treasury yields. If they continue to fall then the Dollar/Yen will weaken.