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The Dollar/Yen posted a loss on Monday despite higher U.S. Treasury and sharp gains in U.S. equity markets. Early in the session the Japanese Yen was under pressure. There were no major reports, however, the U.S. did release its federal budget, which showed its first surplus since September.
Japan was on a bank holiday so volume was slightly below average. Traders were also preparing for the release of Japan’s producer inflation data and its Preliminary GDP.
Traders were also positioning themselves ahead of Wednesday’s U.S. consumer inflation report. Last week’s stock market sell-off was triggered by concern that higher inflation would lead to additional rate hikes from the Federal Reserve and other central banks. If the inflation numbers are higher than expected, we could see some volatility from the U.S. Dollar as well as the stock markets.
The USD/JPY finished Monday’s session at 108.651, down 0.106 or -0.10%.
In other news, the 10-year Treasury yield chewed through last week’s high to reach a new four-year high on Monday. At the close, the yield on the benchmark 10-year Treasury Note was slightly higher at 2.860 percent, while the yield on the 30-year Treasury Bond also ticked up to 3.146 percent. The jump in the yields surprisingly had little effect on the USD/JPY.
Earlier Monday, the 10-year Treasury yield rose to 2.902, its highest level in more than four years as concerns over inflation continued. The 30-year bond yield rose to its highest level since March 14, when the bond yielded as high as 3.215 percent. Traders are expecting Wednesday’s Consumer Price Index (CPI) for January to validate fears that inflation is ramping up.
According to economists, the CPI is expected to grow 0.3 percent month over month and 1.9 percent year over year.
U.S. stocks rose on Monday as the major indexes rebounded from their worst weekly performances in two years. The USD/JPY failed to respond in a positive manner to this news which may mean investors are still trying to find a balance point after last week’s wild swings.
Forecast
Early Tuesday, Japan reported that Producer Price Inflation (PPI) rose 2.7% as expected. This was lower than the previously reported 3.0%.
Later today, Japan is going to release a report on Preliminary Machine Tool Orders. Early Wednesday will feature a report on Preliminary GDP. It is expected to rise 0.2%, down from the previous 0.6%.
In the U.S., FOMC Member Loretta Mester is scheduled to speak. In January, she said the Fed should raise interest rates three to four times in both 2018 and 2019.
We could see another rangebound trade on Tuesday as investors square positions ahead of Wednesday’s U.S. consumer inflation data. The USD/JPY could turn bullish on a sustained move over 109.778 and resume its downtrend on a trade through 108.040.