USD/JPY Fundamental Daily Forecast – Supported by Fading Concerns Over Global Economic Slowdown

The Dollar/Yen is surging early Wednesday on the back of rising U.S. Treasury yields and increased demand for risky assets. The Forex pair has also crossed to the strong side of a key technical area that is helping to generate upside momentum by triggering buy stops and attracting aggressive buyers.

At 04:12 GMT, the USD/JPY is trading 107.743, up 0.212 or +0.20%.

Global bond yields are rising as well as demand for global equities thanks to the recent announcement of the resumption of trade talks between the United States and China. Fading concerns over a global economic slowdown have encouraged investors to sell gold and safe-haven currencies like the Japanese Yen and the Swiss Franc. The price action indicates investors are reducing their expectations for more stimulus from central banks.

Technically, the main trend is down, but momentum has clearly shifted to the upside. The main trend will change to up on a trade through 109.317. A move through 104.463 will signal a resumption of the downtrend.

The minor trend is up. It changed to up when buyers took out a pair of minor tops at 106.976 and 107.086. This move shifted momentum to the upside.

The main range is 109.317 to 104.463. Its retracement zone at 107.463 to 106.890 is controlling the near-term direction of the USD/JPY. The Forex pair is currently trading on the bullish side of this zone, making it support.

Fundamentally, the schedule was light in Japan with the BSI Manufacturing Index coming in at -0.2, better than the -7.1 forecast and -10.4 previous read.

Is BOJ Considering So-Called Reverse Operation Twist?

Bloomberg says the Bank of Japan (BOJ) may be considering a so-called reverse operation twist. “That’s where the central bank moves to cut short-term rates while supporting longer-term ones. In theory, it could head off yen appreciation, support institutional investors’ returns and boost bank stocks,” according to Bloomberg.

“The Bank of Japan’s current dilemma is that while its peers have eased policy – or are set to do so soon – it has refrained from additional action. That leaves Japan’s exchange rate vulnerable if other central bank’s moves drive down their currencies. A stronger yen would hurt Japanese exporter earnings, the stock market and put downward pressure on prices,” Bloomberg wrote.

The USD/JPY could soar if the BOJ makes this move to weaken the Japanese Yen.

Daily Forecast

On Wednesday, traders will get the opportunity to react to the latest data on Core Producer Price Inflation (PPI) and Producer Price Inflation (PPI).

Core PPI is expected to have risen 0.2% and PPI is expected to come in flat. I don’t expect the reports to have much of an effect on the USD/JPY or interest rates since the market has already priced in a 25-basis point rate cut by the Fed next week.