USD/JPY Fundamental Forecast – December 7, 2016

After Monday’s volatile move, Dollar/Yen traders took a breather on Tuesday, pushing the Forex pair slightly higher. The market is also trading higher for the week after a technical signal last week indicated the market may be ripe for a near-term correction.

The USD/JPY closed at 114.027, up 0.185 or +0.16%.

The direction of the USD/JPY on Tuesday was primarily determined by mixed Treasury yields and a firm U.S. stock market.

The yield on the benchmark 10-year Treasury notes was lower at 2.389, while the yield on the 30-year Treasury bond was higher at 3.076. Both remained near their highs for the month. Higher yields make the U.S. Dollar a more attractive investment especially since Japanese debt is offering yields at near zero percent.

U.S. equity indexes rose on Tuesday, as the post-election rally continued. This helped boost the Dollar/Yen because the Japanese currency is a funding currency.

In economic news, third-quarter productivity rose at an annualized rate of 3.1 percent, according to the U.S. Labor Department. The U.S. trade deficit, however, widened to $42.6 billion. October factory orders, rose 2.7 percent, slightly above the 2.6 percent estimate.

Forecast

The direction of the USD/JPY is likely to be determined on Wednesday by Treasury yields and demand for higher-yielding assets. If both continue to firm then look for the USD/JPY to rally.

Domestically, traders will get the opportunity to react to the latest report on Leading Indicators. It is expected to come in at 101.6%, up from the previous 100.3% read.

In the U.S., investors will be eying the JOLTS Job Openings report. It is expected to show an increase to 5.53 million from 5.49 million.

Consumer Credit is forecast at 17.5 billion, down from 19.3 billion.

Early Thursday, Japan will release a slew of reports including the Current Account, Final GDP, Bank Lending, and a 30-year Bond Auction. Traders expect a 0.51% yield.