Daily Fundamental USD / JPY Forecast – Strong Risk Sentiment Favor Higher Yielding US Dollar

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The dollar / yen was lifted on Thursday by a combination of carry trade purchases and the Japanese yen’s safe-haven liquidation. Strong US economic data also supported the greenback.

The divergence in central bank policies remained the main driving force behind the Forex pair higher, with the hawkish Federal Reserve likely to lead to the widening of the spread between US government bond yields and US government bonds. Japanese government bond yields.

On Thursday, USD / JPY stood at 114,417, up 0.300 or + 0.26%. The Invesco CurrencyShares Japanese Yen Trust ETF closed at $ 81.96, down $ 0.27 or -0.33%.

Strong demand for riskier assets fuels the Carry Trade

Stock markets in the US, Asia and Europe posted solid gains as the safe haven Japanese yen eased on signs the Omicron variant would not significantly derail the market. global economic growth. The new market clarity has helped revive the carry trade, a strategy whereby investors borrow in Japanese yen and buy stocks in US dollars.

After taking an almost interest-free loan in yen, traders sell the currency and buy US dollars to invest in the US stock markets.

US data shows stable economy

Thursday’s economic report series showed a stable economy with improving labor and spending trends, but inflation at high levels.

Unemployment claims for the week ended December 18 stood at 205,000 roughly as expected.

Durable goods for November rose 2.5%, compared to the Dow Jones’ estimate of 1.5%.

Personal income and expenses increased in November.

But high inflation remained a problem. The Federal Reserve’s closely watched core personal consumption expenditure (PCE) index rose 0.6% in November from the previous month. Core PCE rose 4.7% year-on-year in November, above the expected rate of 4.5%.

Central bank divergence favors the US dollar

The U.S. Federal Reserve announced last week that it would accelerate the reduction of its massive bond purchase program and paved the way for three interest rate hikes in 2022, but that hasn’t disrupted markets like in 2013 when the Fed reduced its quantitative easing after the financial crisis. .

Meanwhile, earlier in the week, Bank of Japan Governor Haruhiko Kuroda on Monday said it was too early to consider normalizing monetary policy, reinforcing the view that the Japanese central bank would be in the lagging behind other central banks in reducing monetary stimulus.

Advantage: the US dollar against the Japanese yen.

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