USD/JPY Fundamental Daily Forecast – It’s Going to Take a Major Event to Rattle Dollar/Yen Bulls

The Dollar/Yen is trading higher early Wednesday with the Forex pair in a position to breakout to the upside after consolidating most of this week.

At 1245 GMT, the USD/JPY is trading 111.614, up 0.144 or +0.13%.

USD/JPY appear to be sticking with the simple fundamentals and don’t appear to be rattled by outside political and geopolitical events. The current rally is being supported by higher interest rates, a stronger U.S. Dollar and increased demand for higher risk assets.

Traders are keeping an eye on, but not reacting to situations involving North Korea, U.S. Tax Reform and a possible government shutdown. These events will not become factors unless they have a direct effect on the previously mentioned simple fundamentals.

You can also add Fed Chair Janet Yellen to the list of events that traders are watching but not influencing the price action. Her testimony, in my opinion, can only hurt the USD/JPY if she comes across as dovish.

As far as North Korea is concerned, I did not see a meaningful reaction or a move into the safe haven Japanese Yen. However, we have yet to hear or see a response from the United States. If it’s threatening or results in an escalation of military activity in the region, we may start to see buyers jump into the Japanese Yen, but only if the U.S. stock indexes drop sharply on the news.

Tax Reform shouldn’t be too much of an issue today unless Congress announces that the November 30 vote has been delayed.

Talk of a government shutdown on December 8 is something new. However, these types of problems tend to work themselves out as we approach the deadline. It may be a little too early to make this issue relevant.

In conclusion, I’m looking for the USD/JPY to breakout to the upside today. If this move creates enough upside momentum then we could eventually see a move into at least 112.782 over the near-term.

The only way this market will lose ground is if there is surprise news that actually has an impact on U.S. equity prices. At this point, for example, it doesn’t matter that North Korea has developed a missile that can reach anywhere in the U.S. Investors have priced this into the market. It appears that only direct military action against North Korea will rattle investors enough to drive them out of stocks and into the safe haven Yen. The same goes for Yellen’s testimony. She is going to have to say something extremely dovish to change the direction of the Dollar/Yen.