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USD/JPY Fundamental Daily Forecast – Traders Have to Decide on the More Attractive Safe-Haven Asset

Based on last week’s price action, we don’t expect much movement in the USD/JPY unless there is volatility in Treasury yields. This will occur if there are any fresh developments over U.S.-China trade relations. Appetite for risky assets will also have an influence on prices.
James Hyerczyk
USD/JPY

The Dollar/Yen is trading lower early Tuesday. For a second session, the volume and volatility are extremely low. The market is also trading inside Friday’s wide range for a second day, suggesting investor indecision and impending volatility. The lack of fresh economic news and developments over U.S.-China trade relations is driving the price action.

At 0711 GMT, the USD/JPY is trading 109.404, down 0.260 or -0.23%.

Traders are also waiting for a slew of economic news from Japan on Wednesday including Trade Balance and All Industries Activity. The most important news will be the Bank of Japan’s Outlook Report, Monetary Policy Statement, and Interest Rate Decision. Additionally, all of these reports will be explained in the BOJ Press Conference.

The Bank of Japan is widely expected to leave interest rates unchanged at this week’s meeting. The BOJ is also set to debate downside risks to the economy and the inflation outlook. Weakening inflation and slowing external demand mean the BOJ is in no position to normalize monetary policy, while some investors are speculating further easing down the road.

Reuters Poll Says Japan Manufacturers’ Mood Slipped to Two-Year Low

Earlier in the week, a Reuters monthly poll showed confidence among Japanese manufacturers dropped for a third straight month in January to a two-year low as worries over the health of the global economy and trade tensions take a toll on the corporate sector.

The monthly poll, which tracks the BOJ’s closely watched tankan survey, found service-sector sentiment held steady, suggesting that domestic demand may help offset rising headwinds from abroad.

Reuters went on to say that sentiment at both manufacturers and service sector was seen deteriorating further in the coming three months, boding ill for the central bank’s tankan survey due on April 1.

Later today at 1500 GMT, the U.S. will report on Existing Home Sales.

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Forecast

Based on last week’s price action, we don’t expect much movement in the USD/JPY unless there is volatility in Treasury yields. This will occur if there are any fresh developments over U.S.-China trade relations. Appetite for risky assets will also have an influence on prices.

Over the short-term, we’re likely to see a move in the USD/JPY where investors will have to decide to chase the safe-haven U.S. Dollar or the safe-haven Japanese Yen.

News of a slowdown in China’s economy to 28-year lows is also generating fresh worries over global growth. Furthermore, the International Monetary Fund (IMF) cut its 2019 and 2020 global growth forecasts. Both of these events could trigger safe-haven buying, but investors will have to decide if it’s the dollar or the Yen they will seek for protection.

Technically, trader reaction to 109.445 will determine if the Dollar or the Japanese Yen is the more attractive safe-haven asset.

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