The Dollar/Yen surged early in the session on Monday, but backed off as the Forex pair approached last week’s high at 113.251. Nonetheless, it still managed to close higher for the session.
The USD/JPY settled at 112.751, up 0.295 or +0.26%.
The Dollar/Yen was primarily supported by rising U.S. Treasury yields, a stronger U.S. Dollar and increased demand for higher-yielding assets. The catalysts behind the strength on Monday were increasing expectations of a third Fed interest rate hike in December and stronger U.S. economic data.
U.S. Treasury yields rose on Monday amid growing optimism over tax reform from Washington and strong economic data.
The yield on the benchmark 10-year Treasury Notes was higher at around 2.334 percent, as was the yield on the 30-year Treasury Bond, at 2.856 percent.
In economic news, the ISM Manufacturing PMI rose in September, expanding at its fastest pace since May 2004. The report showed an increase from 58.8 in August to 60.8 in September. Analysts were looking for an increase of 57.9.
Traders said disruptions to the supply chains caused by Hurricanes Harvey and Irma resulted in factories taking longer to deliver goods and boosted raw material prices. ISM Manufacturing Prices rose to 71.5, up from 62.0. Analysts were looking for a reading of 64.5.
The Commerce Department said construction spending rose 0.5 percent to $1.21 trillion. July’s construction outlays were revised sharply down to show a 1.2 percent plunge instead of the previously reported 0.6 percent drop. Construction spending increased 2.5 percent on a year-on-year basis.
In other news, Dallas Fed President Robert Kaplan said the Federal Reserve will need to “look hard” at whether it should raise rates in December, but there is no need to wait for inflation to actually get to, or even begin to rise back to, the Fed’s 2-percent target before doing so.
“I need to see some evidence that I think the cyclical forces are picking up enough that eventually it’s likely that inflation will start to build in the future, even if I can’t see it yet,” Dallas Fed President Robert Kaplan, a voting member this year on the Fed’s policy committee, told reporters in El Paso.
Forecast
In Japan, the Monetary Base which is the change in the total quantity of domestic currency in circulation and the current account deposits held at the BOJ, came in below the estimate.
The 10-year Bond Auction came in at 0.08/4.1 versus the previous 0.01/4.0, showing yields were pressured higher.
BOJ Core CPI rose 0.6%, up from 0.4%. Consumer Confidence was better than expected at 43.9.