USD/JPY Fundamental Forecast – January 13, 2017

The Dollar/Yen fell on Thursday, mostly on flight-to-safety and carry trade buying of the Japanese Yen. A steep intraday drop in stock prices was the catalyst behind the weaker Forex pair. Stock traders were responding to Wednesday’s press conference by President-elect Donald Trump where he failed to reveal any of his policy plans for rebuilding America through aggressive stimulus spending, lower taxes and relaxed banking regulations.

The USD/JPY finished the session at 114.712, down 0.683 or -0.59%.

In economic news, U.S. Weekly Unemployment Claims came in at 247K, well below the 266K estimate and slightly higher than the previous week’s 237K.

On Thursday, several Fed officials said that on paper, the policies likely to be pursued by President-elect Donald Trump will raise economic growth. However, the most growth will likely be over the short run and that his plans could result in longer-run inflation and debt problems.

Fed Chair Janet Yellen also gave a speech, but she did not address any key economic issues.

Forecast

Uncertainty surrounding Trump’s policies and his ability to run a government could produce a sideways to lower trade over the near-term, but the dollar could regain its strength later this month if the details of Trump’s plan to rebuild America become clear.

Earlier in the session, the USD/JPY showed a muted reaction to data showing China’s December dollar-denominated exports were down 6.1 percent, while imports were up 3.1 percent.

The report also showed the trade surplus of the world’s second largest economy unexpectedly shrank to $40.818 billion in December from November’s $44.61 billion.

On Friday, investors will get the opportunity to react to a plethora of U.S. economic data. The major reports include Retail Sales, PPI and the Preliminary University of Michigan Consumer Sentiment.

Minor reports include Business Inventories and Preliminary University of Michigan Inflation Expectations.

Core Retail Sales are expected to come in at 0.5%, up from 0.2%. Retail Sales are also expected to come in at 0.5%, versus the previously reported 0.1%.

Producer Prices are expected to increase 0.1%, lower than the previous 0.4%.