USD/JPY Fundamental Daily Forecast – Mueller Investigation Arrests Could Trigger Flight-to-Safety Break

The Dollar/Yen is trading lower early Monday, following through to the downside after posting a potentially bearish closing price reversal top on Friday. The weakness is being attributed to flight-to-safety buying and position-squaring ahead of the Bank of Japan’s monetary policy decision.

At 0940, the USD/JPY is trading 113.570, down 0.098 or -0.09%.

Flight-to-safety buying is being fueled by unrest in Spain’s Catalonia region. On Saturday, sacked Catalonian President Carles Puigdemont called for peaceful “democratic opposition” to the central government’s takeover of the region following its unilateral declaration of independence from Spain.

The U.S. Federal Reserve will hold a two-day policy meeting on Tuesday and Wednesday at which it is expected to leave rates unchanged. However, traders will be looking at the language in its monetary policy statement which should show the central bank is poised to raise rates in December.

The Bank of Japan is currently holding its own two-day meeting ending on Tuesday. It is expected to keep intact a pledge to guide short-term interest rates at minus 0.1 percent and the 10-year Japanese government bond yield around zero percent.

In other news, Japanese Retail Sales fell short of the estimate with a 2.2% read versus a 2.3% forecast. However, it did come in higher than the previous 1.8% read.

Forecast

The USD/JPY could continue to weaken today as traders prepare for the central bank announcements and Trump’s selection for Fed Chair. Traders believe Fed Governor Jerome Powell will be selected. This decision could move the dollar. If he chooses Stanford economist John Taylor then the USD/JPY could soar.

In the U.S., the Core PCE Price Index is expected to come in at 0.1%, unchanged from the previous month. Personal Spending is expected to show a gain of 0.8%, up from 0.1%. Personal Income is expected to come in at 0.4%, up from 0.2%.

Traders should watch for volatility because of external factors today. A federal grand jury in Washington on Friday approved the first charges in the investigation led by special counsel Robert Mueller into alleged Russian meddling in the 2016 U.S. presidential election.

It is possible that someone close to President Trump will be indicted. If this occurs then this should trigger a rally in safe haven assets. This means stocks and the dollar will go down and gold, Treasurys, the Japanese Yen will go up.