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USD/JPY Fundamental Daily Forecast – Price Action Suggests Little Concern Over Brexit Outcome

James Hyerczyk

The Dollar/Yen is trading higher Monday after recovering from early session weakness. The lower opening was a knee-jerk reaction to the U.K.’s parliament to postpone the Brexit vote on Saturday. Aggressive speculators in Asia read the news as bearish, but they quickly covered their short positions when the global equity markets failed to confirm their assessment.

At 07:16 GMT, the USD/JPY is trading 108.526, up 0.122 or +0.10%.

Essentially, its demand for risk that’s propping up the USD/JPY. This conclusion is being supported by higher equity markets in Asia, Europe and the United States. Higher U.S. Treasury yields and lower gold prices are also indicating investors aren’t too worried about the Brexit vote at this time.

On Saturday, the British parliament delayed a crucial vote on a Brexit withdrawal agreement. The move derailed Prime Minister Boris Johnson’s plan for a decision on his withdrawal deal, and forced him to seek from the European Union a third postponement of Britain’s departure from the bloc. The U.K.’s exit is being planned for October 31.

Johnson added another note saying he was opposed to an extension and British government minister Michael Gove said on Sunday that Brexit will happen by October 31 as the government seeks to get the Brexit bill through parliament.

At this time, the financial markets are relatively calm, but later in the week, volatility could increase when traders shift their focus to this week’s vote on Johnson’s deal.

Japanese Economic News

Earlier today, Japan’s Ministry of Finance reported that Japan’s exports fell 5.2% in September from a year earlier, down for a 10th straight month. The result compared with a 4.0% decrease forecast by economists in a Reuters poll and followed an 8.2% drop in August. Imports fell 1.5% in the year to September, versus the median estimate of a 2.8% decline.

The trade balance came to a deficit of 123.0 billion Yen ($1.1 billion), against the median estimate of a 54.0 billion Yen surplus.

The All Industries Activity report came in flat at 0.0%, below the 0.1% estimate.

Both reports had little impact on the Japanese Yen.

Kuroda Says BOJ Can ‘Certainly’ Cut Short-Term Rates

According to Reuters, “The Bank of Japan will ‘certainly’ reduce short- to medium-term interest rates if it needed to ease monetary policy, Governor Haruhiko Kuroda said, suggesting that deepening negative rates will be the primary tool to fight heightening overseas risks.”

Daily Forecast

The USD/JPY is currently being supported by higher Treasury yields and increased demand for risky assets because investors aren’t too concerned about the Brexit outcome. If the tone over Brexit remains positive then look for the Forex pair to extend its gains.

The Dollar/Yen could turn lower if the EU refuses to grant an extension, or if the conflict between Johnson and opponents in Parliament escalates this week and ahead of the Brexit deadline on October 31.

This article was originally posted on FX Empire