USD/JPY Fundamental Daily Forecast – Rising Treasury Yields, Stocks Weigh on Yen as Traders Return from US Holiday

The Dollar/Yen is trading higher on Tuesday as buyers return following Monday’s U.S. bank holiday. Treasury yields are on the upswing again after the one-day reprieve and so is demand for risky assets with U.S. stock indexes continuing to hover near all-time highs.

Helping to boost demand for the safe-haven Japanese Yen during yesterday’s session were renewed concerns over the trade deal after President Donald Trump said over the week-end that trade talks with China were moving along “very nicely” but the United States would only make a deal with Beijing if it was right for America.

The president also said there had been incorrect reporting about U.S. willingness to lift tariffs on Chinese goods. Officials from China and the United States last week said the two countries had agreed to roll back tariffs already in place in a “phase one” trade deal.

Hong Kong Drives Investors into Safe Haven Yen

Investors were also rattled enough by renewed political turmoil in Hong Kong, which drove some to seek shelter in the relative safety of the Japanese Yen. Investors were moved by violence on Monday amid unrest in the embattled city. A protester was left in critical condition after being short by police Monday morning local time. Separately, another man was also in critical condition after he was doused with what people described as “flammable liquid” and set on fire.

Boston Fed’s Rosengren Sees U.S. Economy ‘In Pretty Good Shape’

In U.S. news, Boston Federal Reserve Bank President Eric Rosengren on Monday said the U.S. economy is in good condition and nothing he has seen in recent data would change his view that the Fed’s latest interest rate cut was not needed.

“I view the U.S. economy as in pretty good shape right now,” Rosengren told Reuters following a speech in Oslo. Gross Domestic Product “looks like it is going to be growing around potential.”

“The U.S. economy is in good enough shape that I dissented at the last meeting,” he said. “I did not think the last cut was necessary, and I certainly think that there is nothing that has come in since that meeting that would change my view.”

Japan Economic News

Japan October preliminary machine tool orders came in at -37.4% versus -35.5% year/year prior. This shows that export orders continue to slump and reaffirms the weakness seen in the global manufacturing sector. Japan is no exception to that and this will feed into another sluggish economic performance in the final quarter of the year.

Japanese government bond (JGB) prices fell on Tuesday after a poorly received auction of 30-year debt sparked concern about demand for longer-dated bonds.

The 30-year JGB yield rose 2 basis points to 0.470%. Earlier on Tuesday, Japan’s finance ministry auctioned new 30-year bonds. The bid-to-cover ratio was lower than the previous auction last month, a sign of weakening demand.

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James Hyerczyk

James A. Hyerczyk has worked as a fundamental and technical financial market analyst since 1982. His technical work features the pattern, price and time analysis techniques of W.D. Gann.