USD/JPY Fundamental Daily Forecast – Longest Win Streak Since December Continues on Risk Demand

The Dollar/Yen is pressing higher on Tuesday as investors continue to bet on a Fed rate hike in June. According to the CME MarketWatch tool, traders have upped the odds of a June rate hike to about 83.1 percent. The Greenback is currently experiencing its longest win streak against the Japanese Yen since December.

Increased demand for higher-risk, higher-yielding assets is the catalyst behind the current rally. At the same time, investors are reducing their exposure to lower-yielding assets like gold and the Japanese Yen.

In other news, Japan’s March real wages fell at the fastest pace in almost two years, pressured by meager nominal pay hikes and a slight rise in consumer prices, posing a setback for Prime Minster Shinzo Abe’s attempts to revitalize the economy.

Average Cash Earnings came in at minus 0.4%. Traders were looking for an increase of 0.4%.

Japanese government bond prices dropped slightly on Tuesday, though the benchmark yield inched down from its earlier high after solid demand at a 10-year auction.

Bank of Japan Governor Haruhiko Kuroda said on Tuesday he expects to meet the central bank’s 2 percent inflation target around next fiscal year if the BOJ continues with its current monetary easing.

Speaking in the lower house fiscal and monetary policy committee, Kuroda said the BOJ would adjust policy if needed, but that the central bank had recently upgraded Japan’s economic outlook and the global economy was growing stronger.

It was a light news day on Monday, however, investors did get the opportunity to react to the comments from a pair of Fed officials.

St. Louis Federal Reserve bank president James Bullard sounded a little dovish when he said the economy’s weak performance at the start of the year should slow Federal Reserve plans for further rate increases. His comment probably doesn’t mean the Fed won’t raise its benchmark rate in June, but it may mean they will limit rate hikes later this year.

Cleveland Fed President Loretta Mester was more hawkish when she said, “We have met the maximum employment part of our mandate and inflation is nearing our 2 percent goal.” It sounds like she’s offering support for a June rate hike.

Forecast

The direction of USD/JPY is likely to continue to be controlled by the movement in U.S. Treasury yields, the U.S. Dollar and U.S. equity markets. Basically, look for the Yen to continue on its downward trek as long as there is demand for higher-yielding assets.

There are no major geopolitical events at this time, which mean lower demand for the Yen.