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USD/JPY Fundamental Daily Forecast – Tuesday Focus on U.S. ISM Manufacturing PMI

In the U.S., the key report is ISM Manufacturing PMI. It is expected to come in at 51.2, unchanged from the previous report. The USD/JPY could firm if the number comes in as expected. A lower number will likely seal a 25-basis point rate cut by the Fed later in the month.
James Hyerczyk
USD/JPY

The Dollar/Yen is inching higher early Tuesday as the Forex trade gets back into full swing following Monday’s U.S. bank holiday that produced a lot of nothing on well-below average volume. Although investors will be primarily reacting to the direction of U.S. Treasury yields and demand for risky assets, nearly all of their attention will be on Tuesday’s release of U.S. ISM Manufacturing PMI data, Thursday’s resumption of U.S.-China trade talks and Friday’s release of the U.S. Non-Farm Payrolls report.

At 02:07 GMT, the USD/JPY is trading 106.341, up 0.129 or +0.12%.

In case you missed it, in Japan on Monday, a report from the Ministry of Finance showed Capital Spending rose 1.9%, slightly better than the 1.8% forecast, but well below the previously reported 6.1%.

According to Reuters, “Japanese companies raised spending on plant and equipment in April-June for the 11th straight quarter, underscoring the resilience of capital expenditure despite the U.S.-China trade war and slowing global growth.

Why is this important? Because the data will be used to calculate revised gross domestic product figures due on September 9.

Reuters also said, “Japanese manufacturing activity declined for a fourth straight month in August amid flagging demand, a revised business survey showed on Monday, underlining a darkening outlook for the world’s third-largest economy.”

The final Jibun Bank Japan Manufacturing Purchasing Managers’ Index (PMI) edged down to a seasonally adjusted 49.3 from 49.4 in July, and also off a preliminary 49.5.

“Japanese goods producers continued to signal difficult conditions during August,” said Joe Hayes, economist at IHS Markit, which compiles the survey.

“The sector was plagued by production cutbacks and flagging demand, which have been the trends so far in 2019. Softer growth across Asia, particularly in China, was reported to have dented export opportunities.”

Monday’s data also showed Manufacturer’s Capex fell 6.9% on-year, but non-manufacturers’ spending rose 7.0. Additionally, Corporate Recurring Profits fell 12.0% in April-June from a year earlier, swinging from a 10.3% gain in the previous period.

Sales rose a meager 0.4%, up for a 11th straight quarter but slowing sharply from the previous period’s 3.0% gain.

Daily Forecast

Early Tuesday, a report showed Japan’s Monetary Base rose 2.8% versus a 2.9% forecast. The previous month came in at 3.7%. This report measures the change in the total quantity of domestic currency in circulation and current account deposits held at the BOJ.

Traders are now awaiting the Bank of Japan 10-year Bond Auction. The previous auction yield was -0.15% with a 3.8 bid-to-cover ratio.

In the U.S., the key report is ISM Manufacturing PMI. It is expected to come in at 51.2, unchanged from the previous report. The USD/JPY could firm if the number comes in as expected. A lower number will likely seal a 25-basis point rate cut by the Fed later in the month.

Other reports include Final Manufacturing PMI, Construction Spending, ISM Manufacturing Prices and IBD/TIPP Economic Optimism.

FOMC Member Rosengren is expected to speak after hours.

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