USD/JPY Fundamental Daily Forecast – Jump in Coronavirus Cases Sparks Flight into Safe-Haven Japanese Yen

The Dollar/Yen is down sharply on Thursday after China’s Hubei province, the epicenter of a coronavirus outbreak, reported a sharp jump in the number of new cases in a surprise to investors, sparking a flight into the safe-haven Japanese Yen.

Hubei on Thursday reported 14,840 new cases as of February 12, up from 1,638 new cases on Tuesday, with the number of deaths in the province rising a sharp 242 to 1,310.

At 08:29 GMT, the USD/JPY is at 109.754, down 0.358 or -0.32%.

Hubei’s health commission said it started including cases diagnosed with a new method. Uncertainty about the virus, which emerged in Hubei’s capital Wuhan late last year and has spread to 24 other countries, has shaken up the financial markets over the past weeks.

Appetite for Risk Declines

Global equity markets are down on Thursday as investors trim positions in risky assets and move money into the safety of the Japanese Yen.

Stocks in Asia Pacific were mixed on Thursday afternoon as investors weighed a spike in the number of new coronavirus cases reported in China’s Hubei province due to a tweak in methodology. Stocks were up in Australia, but plunged in China, Japan, South Korea and Hong Kong.

European markets opened lower on Thursday morning. The pan-European Stoxx 600 was around 0.4% lower at the opening bell, with every sector plunged into negative territory.

U.S. stock index futures are pointing to a lower open on Wall Street Thursday as investors continue to worry about the spread of the coronavirus and look ahead to a slew of earnings.

Japan Producer Prices Rise

Japan’s producer price index (PPI) added 0.2% month-on-month in January, beating the projected 0.1% rise, according to the Bank of Japan (BOJ) preliminary monthly report released on Wednesday. Meanwhile, compared to the same time the year before, the country’s PPI rose 1.7% higher.

US Economic News

Federal Reserve Chairman Jerome Powell wrapped up his semi-annual testimony before the Senate Banking Committee on Wednesday, noting the central bank should have an idea of the coronavirus’ impact on the U.S. economy ‘fairly soon.” Powell also said the Fed would use forward guidance and asset purchases to fight an economic downturn, but also suggested the central bank was running out of ammo.

On Tuesday, Chief Powell testified in front of the House Financial Services Committee that the American economy is in a good place, but that the central bank is “closely monitoring” the potential global economic fallout from the virus.

Daily Forecast

The main focus for USD/JPY traders on Thursday will be the direction of the global equity markets and the safe-haven Treasurys. A “risk-off” scenario and a drop in U.S. interest rates will drive investors into the safe-haven Japanese Yen.

On the data front, traders will get the opportunity to react to the latest data on U.S. consumer inflation. CPI is expected to come in at 0.2%. Core CPI is expected to rise 0.2%. These numbers will not be enough to change Fed policy.

Weekly Unemployment Claims are expected to come in at 210K, up from last week’s 202K reading.