USD/JPY Fundamental Forecast – February 28, 2017

The Japanese Yen is the only major currency making a substantial move against the U.S. Dollar early Tuesday. It’s up about 0.27% as investors seek safe haven protection before a speech to Congress by President Trump late Tuesday.

On Monday, the USD/JPY rose on indications that Trump would take the opportunity to preview elements of his plans to cut taxes for the middle class and make U.S. companies more globally competitive.

Also helping to boost the Dollar/Yen on Monday was a surge in U.S. Treasury yields. They rose after Dallas Federal Reserve President Robert Kaplan, a voting member on the central bank’s policymaking committee reiterated his view that a rate hike should come sooner rather than later.

In economic news, durable goods orders rose 1.8 percent in January, slightly above the expected 1.7 percent increase. Pending home sales, dropped 2.8 percent in January to their lowest level in a year.

Forecast

Earlier today in Japan, Preliminary Industrial Production came in at -0.8%, worse than the 0.4% estimate. Retail Sales were higher than expected at 1.0%. Housing starts jumped by 12.8%, well-above the 3.3% estimate.

In the U.S., investors will get the opportunity to react to a slew of U.S. economic data, including the major Preliminary GDP and CB Consumer Confidence.

Fourth-quarter preliminary GDP is expected to come in at 2.1%, slightly above the previous 1.9%. Conference Board Consumer Confidence is forecast at 111.3, also slightly below the previous 111.8.

Minor reports include Preliminary Wholesales Inventories, S&P/CS Composite-20 HPI, Chicago PMI and the Richmond Fed Manufacturing Index.

It remains to be seen how much Trump’s speech will move the Dollar/Yen since he may not offer any specifics on his tax reform plan, for example.

However, if Trump mentions specific countries like China, Germany, Japan and Mexico, all of which have large trade surpluses with the U.S., we can see movement in those Forex pairs.

U.S. Treasury yields will be the primary driver of the USD/JPY over the near-term so start preparing for a battle between what the market thinks and what the Fed thinks. The next Fed meeting is March 15.