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James Hyerczyk
USD/JPY

The Dollar/Yen is down sharply for a second-session and the U.S. Dollar is rising against a basket of major currencies. The stock market is also selling off. This can only mean one thing since the two currencies are known safe-havens, investors are looking for protection ahead of the November 3 U.S. presidential elections.

At 08:44, the USD/JPY is trading 104.275, down 0.167 or -0.16%.

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Currency Market Volatility Jumps Before U.S. Election Outcome

One reason for the rally in the Japanese Yen is the jump in currency market volatility. The catalyst behind the move is growing uncertainty over the outcome of the U.S. election.

With less than a week before the election, national polls give Democrat Joe Biden a solid lead but the contest is much tighter in battleground states that could decide the outcome.

Analysts regard a Biden victory, and especially Democrat control of the Senate, as negative for the dollar since it is expected to deliver big stimulus spending that would boost investor sentiment and drive demand for riskier currencies.

Reuters is reporting that gauges for implied currency swings in the $6.6 trillion a day foreign exchange markets jumped to their highest levels in nearly seven months on Wednesday as traders anticipated more volatility before the outcome of the U.S. elections next week.

Contracts for Japanese Yen one-week implied volatility versus the U.S. Dollar expiring in a week climbed to their highest level since early April before the U.S. Presidential elections on November 3.

While general currency market volatility remains elevated this week as Europe experiences a surge in coronavirus cases, the spurt in short-end volatility indicators indicate concerns around the U.S. election outcome, even though odds have stabilized this week.

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Japan PM Suga to Announce Plan for Fresh Stimulus Package to Ease Pandemic Pain

Japanese Prime Minister Yoshihide Suga will announce next week a plan for fresh stimulus to help the recession-stricken economy shake off the coronavirus crisis, four government and ruling party sources with direct knowledge of the matter said.

Although the size of the package has yet to be decided, some ruling party lawmakers have already called for one of about 10 trillion yen ($95.51 billion) to cushion the blow from the pandemic.

Daily Forecast

Risk sentiment is likely to steer the direction of the USD/JPY on Wednesday. Although both the U.S. Dollar and Japanese Yen are being used as safe-havens, investors are favoring the Yen over the greenback because real interest rates are lower in the United States than in Japan at this time.

For a look at all of today’s economic events, check out our economic calendar.

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