USD/JPY Fundamental Daily Forecast – Fiscal Stimulus Hopes Sink Demand for Safe Haven Yen

The Dollar/Yen is trading higher on Tuesday and the price action indicates the Forex pair could move a lot higher this week amid speculation that several major governments will announce stimulus measures this week.  Yields are rising in the United States, Germany and Japan as well as global equity markets – an early indication that “risk is on”.

At 06:32 GMT, the USD/JPY is trading 104.675, up 2.248 or 2.20%.

Japan to Announce Stimulus Package

Japan will unveil a second package of steps to offset the impact of the coronavirus outbreak, focusing on support for small businesses, Finance Minister Taro Aso says, as concerns mount about risks to the country’s fragile economy.

The government will tap the remainder of this fiscal year’s budget reserve, worth about 270 billion yen, to help finance the package, Aso said.

However, he says there is no need yet for a bigger extra budget, adding the fallout from the outbreak so far is not akin to the 2009 financial crisis.

The government’s move will likely affect the Bank of Japan’s decision on what steps it takes to underpin the economy at its March 18-19 policy review.

Japan will boost its special financing for small and mid-size firms hit by the coronavirus to 1.6 trillion yen, up from the roughly 500 billion yen previously announced, according to a government document seen by Reuters.

As part of the second package, Prime Minister Shinzo Abe has said a government-affiliated lender would offer loans in effect at no interest and without collateral to small firms that have seen sales slump from the virus outbreak.

Trump Floats Ideas on Emergency Fiscal Support

U.S. President Donald Trump on Monday said he will be taking “major” steps to gird the economy against the impact of a spreading coronavirus outbreak and will discuss a payroll tax cut with congressional Republicans on Tuesday.

“We’ll be discussing a possible payroll tax cut or relief, substantial relief, very substantial relief, that’s a big number,” Trump told reporters.

Australian PM Scott Morrison Says Stimulus Package Will Be Announced Soon

Australian Prime Minister Scott Morrison said on Tuesday the government will soon announce measures to stimulate an economy hammered by the effects of the coronavirus outbreak.

A report in the Australian Financial Review on Monday said the government was planning measures worth about A$10 billion, abandoning plans for a budget surplus in the current fiscal year.

“Our objective is this – keep people in jobs, keep businesses in business, and ensure we bounce back stronger on the other side,” Morrison said at the Australian Financial Review conference in Sydney.

“We must favor measures that will lift productivity to enable the Australian economy to sustain an even stronger growth trajectory than we were on prior to the crisis.”