USD/JPY Fundamental Daily Forecast – Firmer in Wake of Hawkish Central Bank Comments

The Dollar/Yen is trading higher early Monday as investors continue to react to rising global interest rates in the wake of hawkish comments last week from central bankers from the European Central Bank, the Bank of England and the Bank of Canada.

At 0549, the USD/JPY is trading 112.458, up 0.098 or +0.09%.

Early in the session, the Forex pair dipped in a knee-jerk reaction to Japanese Prime Minister Shinzo Abe’s Liberal Democratic Party suffering an historic defeat in an election in the capital Tokyo on Sunday, signaling potential trouble ahead for the premier.

This news is not expected to have a strong impact on the Japanese Yen which is why the currency snapped back to positive. Besides, investors are more focused on monetary policy changes in Europe and other regions given last week’s surprised hawkish announcements from the ECB, BoE and BoC.

In other news, Japan’s Tankan report showed big manufacturer’s sentiment beat expectations, with the index hitting a three-year high. The Big Manufacturers Index for June came in higher than expected at +17, compared with a Reuters poll forecast for +15. This was up from +12 in the March survey.

The Tankan Non-Manufacturing Index came in at 23, slightly below the 24 forecast, but higher than the previous read. Final Manufacturing PMI was 52.4, up from 52.0 and above the forecast. Consumer Confidence was 43.3, less than the forecast of 43.9 and 43.6 previously.

Forecast

Today, USD/JPY investors will get the opportunity to react to several reports from the U.S. These include Final Manufacturing PMI, ISM Manufacturing PMI, Construction Spending, ISM Manufacturing Prices and Total Vehicle Sales.

The major report is the ISM Manufacturing PMI. It is expected to come in at 55.0, up slightly from 54.9. A better than expected report should help boost Treasury yields which would should underpin the USD/JPY. However, thin trading conditions could limit the response by investors.