USD/JPY Fundamental Forecast – April 13, 2017

The Dollar/Yen plunged on Wednesday and continued to weaken early Thursday as investors reacted to negative comments about the U.S. Dollar from President Donald Trump and a bearish daily chart pattern.

At 0533 GMT, the USD/JPY is trading 109.013, up 0.035 or 0.03%. Profit-taking after a test of 108.721 is helping to stabilize prices at this time.

Technical sellers continue to dominate the trade now that the Forex pair has breached the key 50% level at 109.919. The downside momentum created by this move has put the USD/JPY on a path towards the next major retracement level at 107.856.

Now that the USD/JPY has crossed to the bearish side of the 50% level at 109.919, it has essentially erased more than half of the rally created by the surprise election of Trump back in November 2016.

The U.S. Dollar broke sharply against the Japanese Yen on Wednesday after Mr. Trump told the Wall Street Journal that the dollar “is getting too strong” and he would prefer the Federal Reserve to keep interest rates low.

Dollar/Yen investors were also watching the relationship between U.S. government bonds and Japanese government bonds. The tightening of the spread between the two debt instruments was also supportive for the Japanese Yen.

The yield on the benchmark U.S. 10-year Treasury note fell to 2.239 percent, its lowest in nearly five months.

Additionally, U.S. government debt prices rose on Wednesday after U.S. Secretary of State Rex Tillerson’s meeting with Russian officials in Moscow didn’t go as well as planned.

Tillerson said during a news conference Wednesday that U.S.-Russia relations are at a “low point” and need to improve. “The world’s two foremost nuclear powers cannot have this kind of relationship,” Tillerson said.

The Treasury Department auctioned $12 billion in 30-year bonds at a high yield of 2.938 percent. The bid-to-cover ratio, an indicator of demand, was 2.33. This was down from the previous 3.17 percent.

In other news, U.S. import prices posted their biggest drop in seven months in March, falling 0.2 percent. Export prices, meanwhile, gained 0.2 percent last month.

The Treasury Department said the budget deficit for March totaled $176.2 billion, compared to $108 billion in March of last year because of special factors. A big part of that increase reflected $42 billion in April benefit payments that were shifted into March because April 1 fell on Saturday this year.

Despite the notable changes, these reports had very little impact on the price action. Today, traders will get the opportunity to react to the latest data on U.S. Producer Inflation, weekly unemployment claims and consumer sentiment.

Look for the USD/JPY to continue under pressure as long as it remains below the key 50% level at 109.919. And this will only be possible if investors continue to shed risky assets and place money into the lower-yielding, less risky Japanese Yen. This is the key price that is currently controlling the direction of the market.