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USD/JPY Fundamental Daily Forecast – Weaker on Concerns Over Tax Reform, Flattening Yield Curve

By:
James Hyerczyk

The Dollar/Yen is trading slightly lower early Thursday after the Bank of Japan released its Summary of Opinions. A slew of economic reports also came in

Japan Economy

The Dollar/Yen is trading slightly lower early Thursday after the Bank of Japan released its Summary of Opinions. A slew of economic reports also came in lower than expected.

On Wednesday, the USD/JPY settled at 113.866, down -0110 or -0.10%.

At 0504 GMT, the USD/JPY is trading 113.786, down 0.080 or -0.07%.

USDJPY
Daily USDJPY

The U.S. Dollar weakened against its Japanese counterpart on Wednesday after U.S. House of Representatives Speaker Paul Ryan left the door open to a possible delay in implementing a huge corporate tax cut, following a media report that his fellow Republicans in the Senate are exploring the option.

Ryan explained the reasoning behind the possible delay saying, “So what economists tell us … is that you still get very fast economic growth and you actually are encouraging companies to spend on factories and plants and equipment and hiring people sooner with the phase-in.”

In other news, according to Reuters, the Bank of Japan’s nine-member board debated calls from one of its policymakers to target the longer end of the yield curve at a rate review in October, a summary of their opinions showed, with several stressing that the current stimulus was sufficient.

Additionally, one board member said the BOJ should pledge to guide the 15-year government bond yield lower than 0.2 percent, instead of aiming to guide the 10-year yield around zero percent.

Forecast

Concerns over tax reform and a flattening U.S. yield curve could continue to put pressure on the USD/JPY on Thursday. The flattening yield curve is of particular interest because it often indicates that investors are pricing in a possible recession.

On Thursday, investors will get the opportunity to react to a couple of U.S. economic reports. Weekly Unemployment Claims are expected to come in slightly higher than last week at 232K. Final Wholesale Inventories are expected to rise 0.3%.

Since the Japanese Yen is considered a safe haven asset, traders should continue to watch for any developments out of North Korea that could encourage investors to dump higher risk assets. If there is no fresh news from the Korean Peninsula then the main focus for traders will be the direction of U.S. Treasury yields.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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