USD/JPY Fundamental Weekly Forecast – US Treasury Yields, Risk Appetite – Key Market Drivers

In the absence of any major develops out of the Middle East, Dollar/Yen traders are likely to be guided by the direction of U.S. interest rates and demand for risky assets.
James Hyerczyk

The Dollar/Yen had a tumultuous week before setting higher, first plunging to its lowest level since October 10 on a wave of safe-haven buying. Then rallying to its highest level since December 13 when risk-seekers re-emerged. The catalysts behind the price action were renewed tensions between the United States and China, and surprisingly softer tones from U.S. and Iranian officials that seemed to calm traders’ nerves.

Last week, the USD/JPY settled at 109.507, up 1.391 or 1.29%.

From a financial market perspective, it was a drop in U.S. Treasury yields that made the U.S. Dollar less attractive during the height of the crisis in the Middle East. A plunge in global equity markets also encouraged investors to buy the Yen. The move to record highs in U.S. stock markets later in the week helped drive the USD/JPY to within striking distance of three main tops at 109.706, 109.728 and 109.930. The latter could be the trigger point for an acceleration to the upside.

Soft US Jobs Report Lifts Japanese Yen

The USD/JPY weakened slightly on Friday after a report showed the U.S. jobs market ended 2019 on a sour note, with December’s payroll and wage growth missing expectations, according to Labor Department figures released Friday.

Non-Farm Payrolls increased by just 145,000 while the unemployment rate held steady at 3.5%. Economists surveyed by Dow Jones had been looking for job growth of 160,000. The jobless rate met expectations for staying at a 50-year low.

In addition to the slow payroll growth, average hourly earnings rose by just 2.9%, below the 3.1% projection. December marked the first time that wage gains were below 3% on a year-over-year basis since July 2018.

Revisions to the October and November counts brought those two months down by 14,000 as well. The glittering 266,000 initial estimate for November came down 10,000 while October’s fell from 156,000 to 152,000.

Weekly Forecast

The major reports this week are out of the United States. On Tuesday, the U.S. will report on consumer inflation. On Thursday, a report on retail sales will be released.

The Labor Department releases data on consumer price growth in December on Tuesday. It is expected to have risen 0.3% last month, or 2.3% from a year earlier. Core consumer inflation is expected to have risen by 0.2% last month, or 2.3% from a year earlier.

The U.S. Commerce Department will provide a look at how retailers fared during the holiday shopping season on Thursday. Traders are looking for a 0.5% rise in Core Retail Sales and a 0.3% rise in retail sales.

In Japan, Bank of Japan Governor Kuroda speaks early Wednesday.

In the absence of any major develops out of the Middle East, Dollar/Yen traders are likely to be guided by the direction of U.S. interest rates and demand for risky assets.

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