USD/JPY Fundamental Weekly Forecast – Safe-Haven Demand Primary Price Driver This Week

The Dollar/Yen closed lower last week with the selling primarily driven by safe-haven buying tied to trade worries. Most of the loss came early in the week as trade concerns and weaker equities encouraged investors to seek shelter in the lower-risk Yen.  Some of the loss was recovered on Friday following the release of stronger-than expected U.S. jobs data, which drove up U.S. Treasury yields and solidified the chances of additional rate hikes by the Fed.

For the week, the USD/JPY settled at 111.083, down 0.026 or -0.025.

The Japanese Yen was underpinned by escalating U.S.-Sino trade tensions. Traders are on edge because a public consultation period for proposed U.S. tariffs on an additional $200 billion for Chinese imports ended at 0400 GMT on Friday and the Trump administration can impose those tariffs at any moment, though there is no clear timetable.

Rising Treasury yields helped limit Japanese Yen gains. The yield on the benchmark two-year Treasury note jumped to its highest level in more than 10 years Friday after the economy added more jobs than expected in August and wages posted their biggest increase of the post-recession period.

According to the Labor Department, nonfarm payrolls grew by 201,000 in August while average hourly earnings rose 2.9 percent for the month on an annualized basis. On a monthly basis, wages jumped 10 cents or 0.4 percent. Economists had expected payrolls to increase 191,000 and wages to increase 0.2%. The unemployment rate held steady at 3.9%.

Forecast

USD/JPY traders will be watching safe-haven demand and the interest rate differential between Japanese Government bonds and U.S. Government bonds. Safe haven buying tied to trade concerns should be supportive for the Japanese Yen. However, gains could be limited or the Forex pair could turn lower if U.S. Treasury yields begin to skyrocket.

U.S. economic data could also influence the Dollar/Yen this week. On Wednesday, the U.S. will release the Producer Price Index (PPI). It is expected to rise 0.2% from 0.0% last month. On Thursday, the Consumer Price index (CPI) is expected to show an increase of 0.3%. Core CPI is expected to rise 0.2%. Friday will feature U.S. retail sales data. Core Retail Sales are forecast to have risen 0.5%. Retail Sales are expected to have risen 0.4%.

There are no major reports from Japan this week. However, the week starts with data on the Current Balance and Final GDP. Later in the week, traders will get the opportunity to react to a 30-Year Bond auction, Tertiary Industry Activity, Preliminary Machine Tool Orders and Revised Industrial Production.