USD/JPY Fundamental Forecast – January 11, 2017

The Dollar/Yen closed lower on Tuesday with most of the selling related to the carry trade because of weaker U.S. equity markets. The dollar was mostly lower during the session due to a drop in Treasury yields.

The USD/JPY closed at 115.748, down 0.317 or -0.27%.

Tuesday was a light economic report day. In Japan, consumer confidence rose to 43.1, up from 40.9. Traders were looking for 41.3. The rise reflects the notion that the weaker Yen will be good for the Japanese economy.

The highlight of the day was the NFIB Small Business Index which came in at 105.8, well above the 99.6 estimate and previous 98.4.

The JOLTS Job Openings report came in at 5.54 million, slightly below the 5.59 million estimate, however, more than the previous read of 5.45 million. Lastly, Final Wholesale Inventories rose 1.0%, higher than the expected and previous 0.9%.

Trading was light and volatility was down in anticipation of the first press conference of President-elect Donald Trump since the election.

Forecast

In economic news early Wednesday, an auction of 30-Year Japanese Government Bonds showed a yield of 0.75 percent. This was up from the previous 0.62 percent.

Later today, investors will get the opportunity to react to the latest report on Japan’s Leading Indicators. This report is expected to show an increase to 102.6%, up from 100.8%.

Trump is scheduled to deliver his press conference at around 1600 GMT. There doesn’t appear to be a set format so he may field questions on a variety of topics.

Ideally, he will be asked about his plans to rebuild America, increase spending on infrastructure, lower taxes and loosen banking regulations. However, he is likely to be peppered with questions on the current hot topics:  the Russian hacking scandal, the repealing of Obamacare and his conflicts of interest.

If he makes comments that are bullish for stocks, then look for the USD/JPY to rally because of the carry trade. If he makes comments that cause volatility or create more uncertainty for stock investors then look for the market to plunge, Treasury yields to drop and the USD/JPY to break.