USD/JPY Fundamental Daily Forecast – Supported by Rising Yields Amid Strong U.S. Data on Labor, Inflation

The Dollar/Yen is trading higher on Friday following through to the upside after a huge rally the previous session. The catalyst behind the strength were strong U.S. labor and inflation data reports that dampened concerns over an economic slowdown.

The Forex pair was primarily supported by steadily rising U.S. Treasury yields that made the U.S. Dollar a more attractive investment. Additionally, increasing demand for riskier assets also underpinned the Dollar/Yen.

At 06:08 GMT, the USD/JPY is trading 111.794, up 0.132 or +0.12%.

Weekly Jobless Claims

On Thursday, the government reported that the number of Americans filing applications for unemployment benefits dropped to a 49-1/2 year low the week-ending April 5. The news signaled sustained labor market strength that could dim expectations of a downturn in economic growth.

The U.S. Labor Department said initial claims for state unemployment benefits fell 8,000 to a seasonally adjusted 196,000 for the week-ended April 6, the lowest level since early October 1969. Economists were looking for an increase to 211,000 in the latest week.

The report represented the fourth straight week of declines. Furthermore, data for the prior week was revised higher by 2,000.

Additionally, the four-week moving average of initial claims, considered a better measure of labor market trends as it levels out week-to-week volatility, fell 7,000 to 207,000 last week, the lowest level since early December 1969.

U.S. Producer Price Index

The U.S. Labor Department said on Thursday that U.S. producer prices increased by the most in five months in March, but underlying wholesale inflation remained subdued.

The Producer Price Index for final demand rose 0.6 percent last month, lifted by a surge in the cost of gasoline. That was the largest increase since October 2018 and followed a 0.1 percent gain in February.

In the 12 months through March, the PPI rose 2.2 percent after advancing 1.9 percent in February. Economists estimated the PPI would climb 0.3 percent in March and increase 1.9 percent on a year-on-year basis.

The Core PPI increased 2.0 percent in the 12 months through March. That was the smallest annual increase since August 2017 and followed a 2.3 percent rise in February.

Daily Forecast

There were no major reports from Japan on Friday. In the U.S., traders will get the opportunity to react the latest data on Import Prices, Preliminary University of Michigan Consumer Sentiment and Preliminary University of Michigan Inflation Expectations.

Investors will be monitoring the impact of the reports on the direction of U.S. Treasury yields. As yields rise, demand for the U.S. Dollar should increase.

Dollar/Yen investors will also be watching the stock market, given the start of quarterly earnings reports. Increased appetite for stocks should put further upside pressure on the USD/JPY.