Yahoo Finance USD/JPY Fundamental Weekly Forecast – Trade War Fears Could Make Yen Desirable Asset
The Dollar/Yen closed sharply lower last week after posting a volatile two-sided trade. The dollar was supported as the spread between U.S. government bond yields and Japanese government bond yields widened due to hawkish comments from Fed Chair Powell. The Forex pair weakened after President Trump announced tariffs on steel and aluminum, triggering a collapse in the stock market.
The USD/JPY settled at 105.711, down 1.136 or -1.06%.
Early in the week, the USD/JPY fell in reaction to a sharp rise in U.S. Treasury yields. Yields were boosted by hawkish comments from Fed Chair Jerome Powell who said the central bank could raise interest rates three or more time during the course of this year to prevent the U.S. economy from overheating.
“We’ve seen some data that in my case will add some confidence to my view that inflation is moving up to target,” Powell told lawmakers on Tuesday. “We’ve also seen continued strength around the globe. And we’ve seen fiscal policy become more stimulative. So I think each of us is going to be taking the developments since the December meeting.”
Flight-to-safety buying helped put in a top in the USD/JPY as investors sought shelter in the Japanese Yen due to sell-off in U.S. equity markets. The selling pressure grew stronger after President Trump announced tariffs on steel and aluminum.
Trump said the U.S. will implement a 25 percent tariff on steel imports and a 10 percent tariff on aluminum imports this week. The surprise announcement sent stocks reeling, with the Dow losing about 500 points over two session. It also raised concern that Canada, Asia and Europe may implement retaliatory tariffs on U.S. exports.
Finally, the Yen also rallied after Bank of Japan Governor Haruhiko Kuroda surprised currency markets by saying the central bank would consider an exit from its ultra-easy monetary policy if it met its inflation target in the year ending in March 2020.
Forecast
The USD/JPY could continue to weaken this week if fears of a trade war and worries over the return of robust inflation continue to dominate the trade.
Fears of a trade war could drive stock prices lower. This would create another flight-to-safety situation that would make the Japanese Yen a more desirable investment.
The return of robust inflation would weaken the dollar, however, rising Treasury yields could offset some of these losses.
The Dollar/Yen could weaken further if President Trump follows through on his threat to hit car exports from the European Union with a retaliatory tax.
In a post on Twitter, Trump cited a “big imbalance” between the two countries and said if the 28-nation bloc insisted on imposing punitive taxes on U.S. goods, America would strike back on European car exports.
“If the E.U. wants to further increase their already massive tariffs and barriers on U.S. companies doing business there, we will simply apply a tax on their cars which freely pour into the U.S., the president said on Twitter.
In other news, traders will also be influenced by the ISM Non-Manufacturing PMI report on Monday and the U.S. Non-Farm Payrolls report on Friday.
The jobs report is expected to show that Average Hourly Earnings rose 0.3% in February. The Non-Farm Employment Change is expected to show a rise of 204K and the Unemployment Rate is expected to drop from 4.1% to 4.0%.
This article was originally posted on FX Empire
