USD/JPY Fundamental Daily Forecast – Weakening as Inflation Concerns Cool

The Dollar/Yen weakened on Monday as U.S. Treasury yields drifted lower on Monday, with little economic data to guide the price action at the start of the week. The yield on the benchmark 10-year Treasury note fell to 1.617%. The yield on the 30-year Treasury bond dipped to 2.315%.

At 03:15 GMT, the USD/JPY is trading 108.716, down 0.054 or -0.05%.

Yields are coming down because inflation worries are coming down and as a result the spread between U.S. Government bonds and Japanese Government bonds is tightening, making the U.S. Dollar a less-attractive asset.

Inflation concerns cooled for the time being as investors may be starting to view President Joe Biden’s infrastructure bill as likely to be smaller, or unable to provide as big an economic boost, even after being pared down in size on Friday.

BOJ’s Kuroda Warns of Uneven Global Recovery from Pandemic

Bank of Japan (BOJ) Governor Haruhiko Kuroda on Monday said the unevenness of the world’s recovery from a coronavirus-triggered recession could lead to an increase in savings, economic inequality and indebtedness.

“The trio of increased savings, inequality and debt is considered to be intertwined in practice and may theoretically reduce the natural interest rate,” Kuroda said in a speech to a BOJ-hosted academic conference.

As the global economy emerges from the pandemic’s initial hit, the role of central banks will shift from providing liquidity support to helping companies stay solvent, he said.

“The nature of the policy responses will … shift from temporary first aid measures to medium- to long-term structural policies,” Kuroda said. “In this sense, we are seeing a widening in the scope of issues that central banks should take into account.”

Reuters reported that Kuroda said the uneven nature of the global recovery could aggravate inequality which, together with “increasing worldwide concern” over climate change, provide fresh challenges to policymakers.

The health crisis has also led to widespread and rapid digitalization, which could increase productivity but may heighten inequality if the benefits are felt by only a small fraction of society, he added.

Short-Term Outlook

Investor focus this week will be on the April personal consumption expenditure index, as a measure of inflation, which is due out Friday. Rising inflation has been a concern for markets, with fears that it might force the Fed to tighten its easy monetary policy.