USD/JPY Fundamental Daily Forecast – Risk-On Bullish, Risk-Off Bearish

The Dollar/Yen posted a two-sided trade on Monday, first edging higher early in the session then plunging into the close. The price action was primarily driven by weaker U.S. Treasury yields and lower demand for higher-risk assets.

The USD/JPY settled at 108.957, down 0.235 or -0.22%.

With very little major economic data to watch, investors were forced to speculate on the outcome of President Trump’s speech Monday night, the commencement of military exercises between South Korea and the U.S., and the start of the annual central banking conference in Jackson Hole, Wyoming later this week. Traders are hoping central bankers signal their next policy actions at this year’s symposium.

Although recent economic data and the Fed minutes have reduced the chances of a Fed rate hike later this week, expectations may rise if Fed Chair Janet Yellen emphasizes that the risks to inflation objectives and financial stability require careful monitoring in her speech on Friday.

Forecast

The direction of the USD/JPY on Tuesday will once again be influenced by U.S. Treasury yields and investor sentiment. Higher yields and rising equity markets will be supportive for the Dollar/Yen. Falling yields and weaker stocks will make the Japanese Yen a more attractive asset.

Without any major economic reports, outside events are likely to have a bigger influence on the direction of the Dollar/Yen. These include President Trump’s speech from Monday night, any news on U.S. tax reform and the reigniting of tensions between the United States and North Korea.

On Tuesday, investors will get the opportunity to react to U.S. Home Price Index and the U.S. Richmond Manufacturing Index.