The USD/JPY rose on Tuesday as investor demand continued to increase for higher risk assets. Rising Treasury yields also made the U.S. Dollar a more attractive investment.
The USD/JPY closed the session at 114.249, up 0.506 or 0.44%.
The rise in U.S. Treasury yields was supported by the testimony of Fed Chair Janet Yellen. In prepared remarks, Yellen said that waiting too long to raise interest rates would be “unwise,” given the rise in inflation and economic growth.
Although Yellen’s comments were interpreted as hawkish, the major stock indices rallied to new record highs. The rally may have been fueled by optimism over President Trump’s tax reform plan that is expected to be released in two to three weeks. Investors may also be hoping they hear more details soon about Trump’s fiscal spending and deregulation plans.
In the U.S., economic data improved with sentiment and inflation data coming in higher. The NFIB small business index reached 105.9, the best read since December 2004.
Investor sentiment will also be the market driver on Wednesday. Once again, greater demand for risky assets will be the catalyst. Therefore, pay attention to Treasury yields and stocks.
Yellen will testify again before Congress on Wednesday. She may offer more clarity about the timing of the next rate hike. Investors have priced in a 22 percent chance of a rate hike in March. This is up from 9 percent just a week ago.
The U.S. is also expected to release a slew of economic data which includes reports on retail sales and consumer inflation.
Core Retail Sales are expected to come in up 0.4%. Retail Sales are estimated to have increased by 0.1%.
Core CPI is expected to show a 0.2% rise and the CPI is expected to come in 0.3% higher.