USD/JPY Fundamental Daily Forecast – Traders Focused on Trade Deal Risk

The Dollar/Yen is trading lower early Friday, indicating investors see a little risk in the market. It could be worries over U.S.-China trade relations, or simply positioning ahead of the U.S. Non-Farm Payrolls report at 13:30 GMT. The Forex pair is also in a positon to finish lower for the week, having never recovered from President Trump’s threat earlier in the week to delay the trade deal until after the U.S. presidential election in November 2020.

At 07:29 GMT, the USD/JPY is trading 108.677, down 0.074 or -0.07%.

Japanese Economic Data

Japanese households cut their spending for the first time in almost a year in October as a sales tax hike prompted consumers to rein in expenses and natural disasters disrupted business.

Household spending dropped 5.1% in October from a year earlier, government data showed on Friday, down for the first time in 11 months and the biggest fall since March 2016 when spending fell 5.3% and weaker than the median forecast for a 3.0% decline.

That marked a sharp reversal from the 9.5% jump in September, the fastest growth on record as consumers rushed to buy goods before the October 1 sales tax hike from 8% to 10%.

“Not only is the sales tax hike hurting consumer spending but impacts from the typhoon also accelerated the decline in the spending,” said Taro Saito executive research fellow at NLI Research Institute.

“We expect the economy overall and consumer spending will contract in the current quarter and then moderately pick up January-March but such recovery won’t be strong enough.”

Japan Government Approves Economic Stimulus Package to Combat Overseas Risks

Japan’s cabinet approved an economic stimulus package worth 26 trillion yen ($239 billion) with fiscal spending of 13.2 trillion yen, aimed at preventing overseas risks from damaging both exports and domestic demand, government officials said.

The government said the new economic package would boost real domestic product by 1.4% through the fiscal year to March 2022.

Daily Forecast

The focus for Dollar/Yen traders will continue to be on the progress of U.S.-China trade talks.

On the data front, all eyes will be on Friday’s jobs report as investors will be looking for a clear read on the U.S. labor market. A weak report may raise the chances of a Fed rate cut in March, but I don’t think it’s going to influence the Fed at its next meeting on December 11.

The headline number is expected to show the economy added 187,000 jobs in November, one of the highest estimates this year ahead of a jobs report. However, don’t get too excited. November’s figure would reflect a temporary boost from returning General Motors autoworkers.

The Unemployment Rate is expected to stay at 3.6% in November, near the lowest in 50 years. Average Hourly Earnings are expected to have risen 0.3% in November.

We’re also going to get an early read on consumer sentiment in December from the University of Michigan’s Surveys of Consumer data. Economists polled by Dow Jones expected sentiment to rise 96.5 from 95.6 in November.

Traders should pay attention to what Larry Kudlow, White House National Economic Council Director, has to say about the progress of the trade deal on CNBC’s “Squawk on the Street”. He’s one of the most reliable sources in my opinion.