USD/JPY Fundamental Daily Forecast – Weaker on Demand for Risk, Stimulus Hopes

The Dollar/Yen is trading lower on Wednesday as investors continue to shed the U.S. Dollar on stronger demand for riskier assets and lower U.S. Treasury yields. Hopes for additional fiscal stimulus from the United States is also weighing on the Forex pair. Traders are also more optimistic about an expected recovery in the global economy from the COVID-19 pandemic this year.

At 08:43 GMT, the USD/JPY is trading 104.472, down 0.101 or -0.10%.

A shift in sentiment since the release of a weaker-than-expected U.S. jobs report on Friday helped put in the top of the USD/JPY. Traditionally viewed as a safe-haven currency, the dollar has sunk against the Japanese Yen as optimism over monetary and fiscal support, robust corporate earnings and coronavirus vaccines bolstered risk sentiment.

Japanese Economic News

Late Tuesday, Japan reported that Preliminary Machine Tool Orders came in at 9.7%. The previous report was revised higher to 9.9%. Early Wednesday, a report showed producer prices in Japan fell 1.6 percent year-on-year in January 2021 after declining 2 percent in December and matching market expectations. It was the eleventh straight decline in producer prices. On a monthly basis, producer prices increased 0.4 percent after a 0.5 percent advance in the previous month, also matching consensus.

As Deflation Looms, BOJ Reshuffle Gives More Voice to Advocates of Big Stimulus

As the coronavirus pandemic stokes fears of deflation, the Bank of Japan is facing changes in its board that could tip the balance in favor of aggressive monetary easing and test the limits of its already stretched policy tool-kit.

The central bank has no immediate plan to exit ultra-loose monetary policy as the hit to the economy from the coronavirus pandemic pushes inflation further away from its 2% target.

But the bigger presence of doves may complicate the BOJ’s ongoing strategy to gradually slow asset purchases and make its policy sustainable enough to endure what will be a long-term battle to spur growth, say sources familiar with its thinking.

Treasury Yields are Flat as Investors Assess Progress on Stimulus Bill

Treasury yields dipped on Tuesday and are inching a little higher early Wednesday as investors digest recent progress on a fiscal COVID-19 stimulus package.

Lower yields followed House Democrats launching their stimulus plan for $1,400 direct payments on Monday evening, which will phase out more quickly than they did under previously proposed legislation.

Daily Forecast

The U.S. Consumer Price Index report is scheduled to be released at 13:30 GMT Wednesday. Economists expect a consensus 0.3% increase in the index, a measure of inflation, or a year-over-year gain of 1.5%, according to Dow Jones. Excluding food and energy, it is projected to rise by 0.1%.

Fed Chairman Jerome Powell is scheduled to deliver a speech on the labor market at 19:00 GMT.

The USD/JPY is currently testing a short-term retracement zone at 104.548 to 104.260. With the trend up, buyers could step in on a test of this area. But if 104.260 fails then look out to the downside. Rather than initiate new positions, the buying may come in the form of profit-taking.