USD/JPY Fundamental Daily Forecast – Flat Trade as Japan Economic Stimulus Offsets Planned US Fiscal Aid

The Dollar/Yen is trading flat on Tuesday as the announcement of fresh fiscal stimulus in Japan seems to be offsetting expectations of another round of coronavirus-relief in the United States.

Japan announced a fresh $708 billion economic stimulus package on Tuesday to speed up the recovery from the country’s deep coronavirus-driven slump, while targeting investment in new growth areas such as green and digital innovation.

At 09:45 GMT, the USD/JPY is trading 104.063, up 0.018 or +0.02%.

Meanwhile, investors eyed coronavirus stimulus in the U.S. Congress. Republican and Democratic leaders on Monday that they are aiming to extend the government funding for another week, while lawmakers look to put together another coronavirus package.

Japan Unveils $708 Billion in Fresh Stimulus with Eye on Post-COVID Growth

Japan’s new economic stimulus package will include about 40 trillion Yen ($384.54 billion) in direct fiscal spending and initiatives targeted at reducing carbon emissions and boosting adoption of digital technology, Prime Minister Yoshihide Suga said in a meeting with ruling party executives.

Policymakers globally have unleashed a wall of monetary and fiscal stimulus to prevent a deep and prolonged recession as the coronavirus closed international borders and sent millions out of work.

In Japan, the pandemic has forced the government to put its fiscal reform agenda on the backburner, despite holding the industrial world’s heaviest public debt burden, which is twice the size of its gross domestic product.

“We have compiled the new measures to maintain employment, sustain business and restore the economy and open a way to achieve new growth in green and digital areas so as to protect people’s lives and livelihoods,” Suga said at the meeting.

Suga’s cabinet is set to endorse the stimulus package later on Tuesday, which would bring the combined value of coronavirus-related stimulus to about $3 trillion.

The government will compile a third extra budget for the current fiscal year worth around 20.1 million Yen to fund the fresh economic stimulus, a government source told Reuters on Tuesday.

Short-Term Outlook

According to Reuters, two previous packages this year worth a combined $2.2 trillion focused on dealing with the immediate strain on households and business from the pandemic.

The new plan includes a 2-trillion Yen fund to promote carbon neutrality by 2050, 1 trillion Yen to accelerate digital transformation and 1.5 trillion Yen in subsidies to support restaurants hurt by shortened trading hours due to COVID-19.

Japan’s economy, the world’s third largest, rebounded in July-September from its postwar contraction in the second quarter, though many analysts expect a third wave of COVID-19 infections to keep any recovery modest.