The USD/JPY continued to rally early Wednesday as investors continued to respond to the increased demand for higher-risk assets, following the French
The USD/JPY continued to rally early Wednesday as investors continued to respond to the increased demand for higher-risk assets, following the French election on Sunday. Traders are also reacting to a rise in U.S. Treasury yields and the easing of tensions in North Korea.
The Dollar/Yen moved steadily higher on Tuesday as investors responded to favorable U.S. economic data.
U.S. housing data was primarily in focus yesterday. The Home Price Index (HPI) rose 0.8%, beating the 0.1% estimate. The previous month was also adjusted higher to 0.2%.
The S&P/CS Composite-20 HPI rose 5.9%, besting the 5.7% estimate and previous read. New Home Sales also rose by 621K units.
Finally, the Conference Board’s Consumer Confidence report came in at 120.3, below the 123.7 estimate. The previous report was also revised downward to 124.9. However, the figure remained near a 16-year high.
All eyes will be on the revealing of President Trump’s “big announcement” regarding his plans for overhauling the U.S. tax code.
The exact details of Trump’s tax plan remain unclear. However, most investors believe it will include a proposal to slash the top tax rate on so-called “pass-through” businesses to 15% from 39.6%.
Investors will also be looking ahead to the Bank of Japan’s monetary policy meeting. Recent data has shown that Japanese inflation is weak. This likely means that investors should have low expectations of a rate hike later this year.
According to The Wall Street Journal, “One of the Bank of Japan’s chief messages ahead of a policy meeting on Wednesday and Thursday is that any talk of tightening measures is premature because prices aren’t recovering as strongly as the economy. That stance suggests the bank will keep both its main policy rates unchanged, while possibly lowering its view on prices to offset an improved outlook for the economy.
At this time, the Japanese Yen is most sensitive to investor perception of risk. A risk-on scenario tends to be bearish for the Yen. A risk-off scenario tend to be bullish for the currency. Central bank officials seem to be satisfied with the Yen’s response to market forces.
However, the BOJ is worried about inflation. They feel that rising inflation will strengthen the case for a rate hike and this would likely strengthen the Yen. A stronger Yen will likely hurt exports as well as growth of the economy.
Look for the USD/JPY to continue to rise as long as we are in a risk-on environment.
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.