USD/JPY consolidates, for now, as COVID-19 takes hold of Japan
- USD/JPY hangs in the balance of the Japanese measures to contain the COVID-19 threat.
- Risk sentiment will remain skewed to the downside, likely favouring the US dollar if volatility picks up.
USD/JPY is trading at 107.87, +0.67%, and moving between 107.01 and 108.09 while the markets take a breather and a step back from a chaotic start to the year and assess the damage and outlook for the next quarter. One thing is for sure, however, that there is a mountain of risk factors to climb before we will see some continued stability back into markets pertaining to a highly fluid COVID-19 crisis, underpinning risk-off asset classes.
The global number of confirmed deaths from the coronavirus surpassed 50,000 and cases edged toward 1 million, according to tracking by Johns Hopkins University. The United States has been the worst hit with Europe falling in close behind with Italy, Span and the UK hit especially hard. It is a toss-up between the fight against the novel coronavirus and the economy as nations seek a means to resume normal business operations but weighing this desire against the risk of triggering new cases.
Eyes on Japan and government measure to contain a pending epidemic
There is a focus back on Japan having kept early coronavirus cases in check but with a rapid rise of new cases of late, the nation is back to the drawing board and lockdowns are the first port of call while fiscal stimulus will be back in play. This leaves the yen vulnerable considering investors might think twice about putting their idle capital there.
The day-to-day economy has been functioning relatively normally so far considering Japan has gotten off lightly relative to other countries around the world. There is no lockdown yet. However, the number of new COVID-19 cases is increasing and authorities are scrambling to respond with a solution. Economic activity is set to vastly decline if Tokyo and other cities are locked down. The Bank of Japan is limited to what it can do to stimulate the economy other than do what it has always done, practising unorthodox monetary easing since 2001 and buying ETF’s. Instead, markets are fixated on what the government will implement in terms of fiscal stimulus plans - ears are to the ground for a new emergency budget.
The dollar is still the markets go-to vol hedge
As for the US dollar, investors are too highly concerned for the US state of affairs. US Donald Trump, who is seldom downbeat, delivered a very solemn delivery yesterday, addressing the nation as the spread of the virus tears through the States of America with a high death toll and rapidly increasing number of COVID-19 cases. There are now 226,216 with 12,844 added on Thursday and 5,315 deaths. The US dollar, regardless of the state of affairs in the US economy, for now, will be favoured as a safe haven at times of extreme volatility.
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