USD/JPY Fundamental Weekly Forecast – Japan Leaning More Toward Fiscal Stimulus to Revive Economy

Last week, the Dollar/Yen tumbled as investors shed their safe-haven positions in the greenback after the Federal Reserve announced unprecedented stimulus measures and President Trump signed the biggest financial aid package in history. Both moves mean there will be plenty of U.S. Dollars available to alleviate the strain in the credit markets.

Last week, the USD/JPY settled at 107.977, down 2.893 or -2.61%.

While the U.S. government and central bank were preparing to soften the impact of the coronavirus on the global economy along with several other major governments and central banks, the Bank of Japan held its ground by refraining from further rate cuts since its benchmark rate was already negative.

There were also rumors that the BOJ was preparing to make a major stock index ETF buy. However, reports also showed the central bank is also losing a lot of money on its recent investments. Finally, the government postponed the Olympic Games, scheduled for this summer. Investors actually liked this announcement because they did not cancel the event.

US Events Weigh on Dollar Demand

The USD/JPY retreated last week as trillions of dollars’ worth of stimulus efforts by governments and central banks helped temper a rout in global markets triggered by the coronavirus pandemic.

Last Monday, the Federal Reserve announced a barrage of new programs to help keep the market functioning. Among the moves is an open-ended commitment to keep buying assets under its quantitative easing measures. There are multiple other programs, including one for Main Street business lending and others aimed at keeping credit flowing. The Fed will also be moving for the first time into corporate bonds, purchasing the investment-grade securities in primary and secondary markets and through exchange-traded funds.

On Friday, President Donald Trump signed an unprecedented $2.2 trillion economic rescue package into law after swift and near-unanimous action by Congress to support businesses, rush resources to overburdened health care providers and help struggling families during the deepening coronavirus epidemic.

Japan to Spend Over $137 Billion as Virus Hits Economy

Although the BOJ refrained from cutting rates aggressively or promising to implement quantitative easing practices, last week, Japanese Prime Minister Shinzo Abe pledged “huge” stimulus that will involve spending of at least $137 billion financed in part by deficit-covering bonds, sources said, joining global efforts to cushion the economic blow from the coronavirus pandemic.

While the amount of debt issuance is likely to be modest, it will put considerable market focus on Japan’s dire fiscal position – at a time the market rout caused by the outbreak is prodding investors to dump even safe-haven assets like government bonds in favor of cash.

“We need to come up with big, powerful and fiscal measures that meets the enormous magnitude of the hit from the coronavirus outbreak,” Abe told parliament last Monday.

“Depending on the situation, we’ll take measures that exceed in scale those taken after the Lehman crisis,” he said.

This article was originally posted on FX Empire

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