The Dollar/Yen closed higher last week as investors shrugged off predictions of a U.S. recession later in the year. Although U.S. Treasury yields tumbled to multi-year lows, the dollar lost no value against the Japanese Yen. There wasn’t even a follow-through to the downside after the previous week’s steep sell-off. Increased appetite for riskier assets also helped drive demand for the U.S. Dollar.

Last week, the USD/JPY settled at 110.844, up 0.925 or +0.84%.

The Forex pair was also supported by the hope of a trade deal after the U.S. and China resumed their trade talks last week. This was seen as a positive by many investors who believe a trade deal could be imminent.

U.S. Treasury Secretary Steven Mnuchin said in a tweet at the end of the week that he and U.S. Trade Representative Robert Lighthizer had concluded “constructive” trade talks in Beijing. He further added, “I look forward to welcoming China’s Vice Premier Liu He to continue these important discussions in Washington next week.”

Traders turned optimistic after Reuters reported that Chinese officials made unprecedented offers regarding forced technology transfers as well as other major sticking points.

Throughout the week, the big story was the steep plunge in U.S. Treasury yields, however, the USD/JPY traders seemed unfazed by the drop. Last week, the 10-year U.S. Treasury hit its lowest level since 2017 as investors worried about slowing economic growth. The previous week, the yield on the 10-year Treasury note fell below that of the 3-month bill for the first time since 2007. This inverted the yield curve which raised a red flag about a future recession.

There were no major reports out of Japan last week, but the mid-level reports were mixed with the Unemployment Rate falling to 2.3% and Housing Starts jumping 4.2%. However, Retail Sales came in lower than expected at 0.4%.

The Bank of Japan Summary of Opinions showed that policymakers debated the feasibility of ramping up monetary stimulus at their rate review in March as heightening overseas risks weighed on the country’s fragile economy.

In the U.S, Consumer Confidence came in at 124.1, well-below the 132.1 forecast. Final GDP also missed the 2.4% forecast, coming in at 2.2%.

Weekly Forecast

This week the price action in the USD/JPY is likely to be influenced by a slew of major U.S. economic data including Retail Sales, ISM Manufacturing PMI and Durable Goods. However, the major market moving event this week is likely to be the U.S. Non-Farm Payrolls report, especially because of last month’s major miss to the downside.

Traders expect the March Non-Farm Employment Change to show the economy added 175,000 jobs, up from 20,000. Average Hourly Earnings are expected to come in at 0.2% and the Unemployment Rate is expected to hold steady at 3.8%.

Another miss to the downside by payrolls will likely be bearish for the USD/JPY especially after the Commerce Department reported on Friday muted price pressures, as measured by the Personal Consumption Expenditure index (PCE), the Federal Reserve’s preferred measure of inflation.

A combination of weak inflation and job market will mean the Fed was right in calling off its rate hikes for the rest of the year, but investors may read this as a sign the economy is headed toward a recession which would be bearish for the Dollar/Yen.

This article was originally posted on FX Empire

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