USD/JPY Fundamental Daily Forecast – Treasury Yields Tick Higher Ahead of Key Auctions

A slight uptick in Treasury yields is helping to boost the Dollar/Yen on Monday. This is helping the Forex pair recover some its loss from Thursday and Friday when the dollar weakened and Treasury yields fell in reaction to softer-than-expected U.S. consumer inflation data.

At 1111 GMT, the USD/JPY is trading 109.518, up 0.167 or +0.14%.

Overnight, the Japanese government reported year over year PPI at 2.0%. This matched the estimate, but came in slightly below the previously reported 2.1%.

Preliminary Machine Tool Orders came in at 22.0%, down from 28.1%.

In other news, speaking in France, Cleveland Fed President Loretta Mester said the Federal Reserve should continue its gradual approach to raising interest rates given that inflation has not yet reached the U.S. central bank’s 2 percent goal in a sustained way.

“In my view, the medium-run outlook supports the continued gradual removal of policy accommodation; it seems the best strategy for balancing the risks to both of our policy goals and avoiding a build-up of financial stability risks,” Mester said in prepared remarks for a speech in Paris.

Mester also said she does not expect inflation to pick up sharply, adding that while it is close to the Fed’s symmetric 2 percent target, it will only reach that level on a sustainable basis over the next one to two years.

“We want to give inflation time to move back to goal…this argues against a steep path,” she said.

Forecast

Treasury yields are likely to direct the USD/JPY today. Traders are currently waiting for the release of Treasury Department auctions.

Early in the session, the yield on the benchmark 10-year Treasury note was higher at 2.9786 percent, while the yield on the 30-year Treasury bond was also higher at 3.1186 percent.

On the auctions front, the U.S. Treasury is scheduled to auction $48 billion in 13-week bills and $42 billion in 26-week bills on Monday. The USD/JPY is likely to rise if the yields come in higher than expected.