USD/JPY Fundamental Weekly Forecast – Bearish Trend if Risk-off Tone Continues

The direction of the USD/JPY will be determined this week by U.S. Treasury yields and appetite for risk. The catalyst impacting both factors will be U.S.-China and U.S.-Mexico trade relations as well as ISM Manufacturing PMI, a speech by Fed Chairman Jerome Powell, ISM Non-Manufacturing PMI, a speech by BOJ Governor Kuroda and the U.S. Non-Farm Payrolls report.
James Hyerczyk
USD/JPY

The Dollar/Yen finished sharply lower last week as a drop in demand for risky assets sent investors into the safety of the Japanese Yen. Lower Treasury yields also helped tighten the spread between U.S. Government bond yields and Japanese Government bond yields, making the U.S. Dollar a less-desirable asset.

Yields tumbled all week as investors continued to bet a slowing economy would lead to a Fed rate cut later in the year. The move actually helped weaken equity prices as investors shed stocks in anticipation of a weaker economy. Tension over U.S.-China trade relations limited gains early in the week, but President Trump’s vow to place a tariff on Mexican imports, contributed to financial market weakness late in the week.

The weakness on Friday is expected to set the tone early in the week in the financial markets as well as determine the early direction of the Dollar/Yen.

Last week, the USD/JPY settled at 108.291, down 1.004 or -0.92%.

Economic News

The USD/JPY was steady most of the week on mixed economic data. The week started with a U.S. bank holiday and trade talks between U.S. President Trump and Japanese Prime Minster Shinzo Abe. Trump thought the talks went well and hinted that a deal could be completed in August. However, Japanese officials played down expectations for a fast deal.

U.S. housing data continued to weaken, while consumer sentiment was mixed. The Conference Board reported a jump in sentiment, while the University of Michigan reported a drop.

U.S. Preliminary GDP rose 3.1% as expected. However, the internals of the report indicated inflation fell during the first quarter, somewhat contradicting the Fed’s assessment that low inflation was “transitory”. April Core PCE Price Index rose 0.2%. Personal Spending and Personal Income beat their estimates.

All-in-all, it was a mixed week for the U.S.

In Japan, the big surprise was the 0.6% jump in Preliminary Industrial Production. Traders were looking for a 0.2% gain. The previous month was also revised higher to -0.6%.

On the bearish side, retail sales missed the forecast with a 0.5% gain. Housing Starts plunged 5.7%.

Weekly Forecast

The direction of the USD/JPY will be determined this week by U.S. Treasury yields and appetite for risk.

The catalyst impacting both factors will be U.S.-China and U.S.-Mexico trade relations as well as ISM Manufacturing PMI, a speech by Fed Chairman Jerome Powell, ISM Non-Manufacturing PMI, a speech by BOJ Governor Kuroda and the U.S. Non-Farm Payrolls report.

With traders betting on a rate cut, they’re going to need support from the economic data to stay the course. In terms of a global economic slowdown, investors will be keying on Sunday’s Caixin Manufacturing PMI report from China. It is forecast at 50.0. The Dollar/Yen could tumble if the number comes in below 50.

In the U.S. on Monday, traders will get the opportunity to react to the ISM Manufacturing PMI. It is expected to come in at 53.0. The closer this number gets to 50.0, the more bearish for the Dollar/Yen. ISM Non-Manufacturing PMI on Wednesday is expected to come in at 55.6.

The major report is Friday’s U.S. Non-Farm Payrolls report. This report is important because the Fed is holding rates steady due a strong labor market and muted inflation. A bearish report will likely drive the USD/JPY lower.

Continue to look for heightened volatility, but keep in mind that all its going to take is for the U.S. and China to announce that trade talks are back on to turn the financial markets higher.

Don't miss a thing!

Discover what's moving the markets. Sign up for a daily update delivered to your inbox

Latest Articles

See All

Expand Your Knowledge

See All
IMPORTANT DISCLAIMERS
The content provided on the website includes general news and publications, our personal analysis and opinions, and contents provided by third parties, which are intended for educational and research purposes only. It does not constitute, and should not be read as, any recommendation or advice to take any action whatsoever, including to make any investment or buy any product. When making any financial decision, you should perform your own due diligence checks, apply your own discretion and consult your competent advisors. The content of the website is not personally directed to you, and we does not take into account your financial situation or needs.The information contained in this website is not necessarily provided in real-time nor is it necessarily accurate. Prices provided herein may be provided by market makers and not by exchanges.Any trading or other financial decision you make shall be at your full responsibility, and you must not rely on any information provided through the website. FX Empire does not provide any warranty regarding any of the information contained in the website, and shall bear no responsibility for any trading losses you might incur as a result of using any information contained in the website.The website may include advertisements and other promotional contents, and FX Empire may receive compensation from third parties in connection with the content. FX Empire does not endorse any third party or recommends using any third party's services, and does not assume responsibility for your use of any such third party's website or services.FX Empire and its employees, officers, subsidiaries and associates, are not liable nor shall they be held liable for any loss or damage resulting from your use of the website or reliance on the information provided on this website.
RISK DISCLAIMER
This website includes information about cryptocurrencies, contracts for difference (CFDs) and other financial instruments, and about brokers, exchanges and other entities trading in such instruments. Both cryptocurrencies and CFDs are complex instruments and come with a high risk of losing money. You should carefully consider whether you understand how these instruments work and whether you can afford to take the high risk of losing your money.FX Empire encourages you to perform your own research before making any investment decision, and to avoid investing in any financial instrument which you do not fully understand how it works and what are the risks involved.
FOLLOW US