USD/JPY Fundamental Daily Forecast – Traders Waiting for BOJ to Make Its Move; US ISM Services Report on Tap

The Dollar/Yen is trading slightly higher on Wednesday after reversing earlier losses. The move is being fueled by a pick-up in demand for higher risk assets, however, weaker Treasury yields are helping to cap gains.

Despite the turmoil in the markets, the response by Dollar/Yen investors this week has been nearly textbook with the Forex pair falling as support eroded for higher-yielding assets and yields plunged, and rallying on increased demand for risk and higher yields.

At 10:11 GMT, the USD/JPY is trading 107.503, up 0.396 or +0.37%.

Tuesday’s Recap

The USD/JPY fell 1.14% on Tuesday after the U.S. Federal Reserve made an unexpected 50-basis point rate cut two weeks ahead of its scheduled meeting due to the “evolving risks to economic activity” posed by the coronavirus. It was the central banks first such emergency action coming in between scheduled meetings since the 2008 financial crisis.

U.S. stock indexes nosedived on the news as the move by the Fed amplified fears about the magnitude of the coronavirus’ impact on the economy. Additionally, the benchmark 10-year yield dipped below 1% for the first time in history.

Group of Seven Disappoints

Before the opening on Tuesday, investors were counting on the G7 to announce coordinated rate cuts and perhaps fiscal stimulus measures to combat the negative impact on the global economy by the coronavirus. This included the Bank of Japan. Instead, G7 officials failed to lay out a specific response to global slowdown, disappointing investors.

BOJ Governor Haruhiko Kuroda Plans to Meet with Parliament

In Japan, Bank of Japan (BOJ) Governor Haruhiko Kuroda is expected to appear in parliament later on Wednesday, according to a Reuters report which cited two sources.

The BOJ could ramp up stimulus this month as part of efforts by central banks to prevent the coronavirus outbreak from triggering a global recession. But it will be a close call as the BOJ has less ammunition than the Fed, with its short-term interest rate target below zero and its balance sheet bloated from years of heavy asset buying.

Daily Forecast

Continue to expect the USD/JPY to respond in the traditional way to the price action in U.S. equity and Treasury markets.

Fundamentally, investors will be influenced by the ADP Non-Farm Equipment Change and ISM Non-Manufacturing PMI reports.

The ADP data is expected to show the private sector of the economy added 170K jobs in February. A lower number should be bearish for the Dollar/Yen. However, losses could be limited because the Fed already cut rates to fight a weakening economy.

The ISM Non-manufacturing PMI report is expected to come in at 54.9. A lower number will signal that the coronavirus outbreak has already had an impact on the U.S. services industry. A move under 50.0 will indicate a contraction in the sector.