The Dollar/Yen rebounded from early weakness last week to challenge its highest level since May 23. The Forex pair was underpinned by flight-to-safety buying into the U.S. Dollar and a hawkish outlook for U.S. interest rates.
For the week, the USD/JPY finished 110.687, up 0.701 or +0.64%.
The catalysts driving the Dollar/Yen higher ranged from lingering concerns over a trade war between the United States and its major trading partners, China and the European Union to U.S. economic data to Fed member comments.
After opening the week under pressure, the USD/JPY rallied as lingering global trade tensions prompted traders to ditch most high-yielding currencies and investors focused on expectations the Federal Reserve will continue to raise interest rates.
In Japan, the Bank of Japan released its latest Summary of Opinions. Policymakers said the central bank should “patiently continue” its powerful monetary easing but attention must be paid to the potential side effects of prolonged easy policy. Some board members said the central bank needs to keep monetary easing from severely distorting economic and financial conditions, and to make current policy sustainable.
Overall, it appears that while the BOJ is expected to ride the current economic momentum towards its price target of 2 percent inflation, policymaker opinions have become clearly divided.
In U.S. economic news, the Commerce Department said Wednesday durable goods orders dropped 0.6 percent last month. That followed a steeper drop of 1 percent in April.
On Thursday, the Commerce Department reported that U.S. first-quarter growth slowed more than estimated. Gross domestic product increased at a 2.0 percent annual rate in the January-March period, instead of the 2.2 percent pace it reported last month.
Consumer confidence fell well below economists’ expectations in June, fueled by a bleak outlook for U.S. economic conditions. The Confidence Board’s index dropped to 126.4 from a revised 128.8 in May. The index was expected to hit 128.1.
Additionally, Dallas Fed Bank President Robert Kaplan said he believes the U.S. central bank’s monetary policy is still accommodative and suggested the Fed could raise rates at least two more times before it stops being accommodative. However, Federal Open Market Committee member Raphael Bostic said he may rule out a fourth rate hike this year if trade issues start to negatively affect the economy.
Lingering concerns over a possible trade war will continue to drive the price action, but investors also have to deal with a few major reports from the U.S. and minor reports from Japan.
In the U.S., bullish data should put even more pressure on the Japanese Yen. U.S. reports include ISM Manufacturing PMI, ISM Non-Manufacturing PMI, the Fed Minutes and the U.S. Non-Farm Payrolls report.
Traders will be particularly interested in the Fed Minutes which could reveal the central bank’s thoughts on the impact of a trade war on U.S. economic growth. Traders will also be looking for information on the possibility the Fed will allow inflation to overshoot its 2-percent target.
Wednesday is a U.S. bank holiday.
In Japan, traders will be especially interested in the Tankan Manufacturing Index and the Tankan Non-Manufacturing Index. Final Manufacturing PMI is expected to come in unchanged at 53.1.
Other minor reports include Household Spending (-1.5% versus -1.3%), and Leading Indicators (106.5% versus 106.2%).