USD/JPY Fundamental Daily Forecast – North Korean Tensions, Fed Speakers Driving Investors into Yen

The Dollar/Yen remained under pressure on Tuesday as tensions over North Korea remained high. In the latest news, North Korea has been observed moving what appeared to be an intercontinental ballistic missile towards its west coast, South Korea’s Asia Business Daily reported on Tuesday, citing an unidentified intelligence source.

At 1000 GMT, the USD/JPY is trading 109.375, down 0.861 or -0.78%.

Due to the lack of major economic releases from the U.S. and Japan this week, traders are likely to remain focused on the on-going turmoil between the U.S. and North Korea.

To recap, North Korea on Sunday conducted its sixth and most powerful nuclear test, which it said was an advanced hydrogen bomb for a long-range missile, prompting the threat of a “massive” military response from the United States if it or allies are threatened.

U.S. Defense Secretary Jim Mattis followed up by saying, “Any threat to the United States or its territories, including Guam or our allies will be met with a massive military response, a response both effective and overwhelming.”

On Monday, the White House stated that “all options to address the North Korean threat are on the table,” while the United Nation’s U.S. Ambassador Nikki Haley appealed to the U.N. Security Council to enforce the “strongest possible” sanctions, according to Reuters.

Russian President Vladimir Putin also said on Tuesday that imposing tougher sanctions on North Korea over its nuclear missile program would be counter-productive and said threats of military action could trigger “a global catastrophe”.

All this talk and no action is helping to build the tension in the financial markets, leading investors to turn to the Japanese Yen for protection.

Once again, the direction of the USD/JPY will be dictated by U.S. Treasury yields, the U.S. Dollar and risk sentiment. Helping to pressure the Forex pair today are lower yields and lower U.S. equity prices.

We could see further downside pressure today in reaction to three FOMC member speeches.

Federal Reserve Governor Lael Brainard is expected to speak at the Economic Club in New York, Minneapolis Fed President Neel Kashkari will speak at the Carlson School of Management in Minneapolis. Later today, Dallas Fed President Robert Kaplan will talk to the Dallas Business Club.

Traders expect the trio to maintain a dovish tone if they talk about Fed policy.