USD/JPY Fundamental Daily Forecast – Risk Aversion Concerns Driving Investors into Japanese Yen

The Dollar/Yen is inching higher early Wednesday after hitting its lowest level since May 26 the previous session amid some risk aversion concerns. Lower Treasury yields are also weighing on the greenback, which may be indicative of fears of a coming disappointment in economic growth.

At 03:44 GMT, the USD/JPY is trading 109.034, up 0.003 or +0.00%.

Uncertainty and lack of clarity over domestic and global economic growth, risk sentiment with shares in Asia plunging and U.S. stocks near record highs and the potential impact of the coronavirus Delta variant are a few of the factors fueling the move into the safe-haven Japanese Yen.

Uncertainty, Lack of Clarity over Domestic, Global Economic Growth

Investors appear to be worried about the state of the global economy, but the data has been confusing at times, causing uncertainty. When there’s uncertainty, investors tend to move money into safe-havens like the Japanese Yen.

Recent manufacturing reports from the United States and China pointed toward weakness in the sector. However, earlier today, New Zealand reported strong employment growth and a drop in the unemployment rate, raising the chances of a RBNZ rate hike on August 18.

Additionally, crude oil traders who up until this week showed little concern for the spread of the coronavirus-Delta variant are now citing concern about rising cases of the virus for this week’s nearly 5% sell-off. It was only four days ago that crude oil bulls were saying that demand would outstrip supply into the end of the year. Now they aren’t too sure.

Asia-Pacific Shares under Pressure while US Stocks Hover Near Record Highs

Mixed risk sentiment readings are also driving investors into the safety of the Japanese Yen.

Regulatory fears are spreading to these other Chinese assets, after Beijing stepped up restrictions on its education sector late last week, and continued its crackdown on its internet companies. Meanwhile, U.S. shares are being driven to record highs by strong earnings and expectations of lower interest rates.

Renewed COVID Worries

Concerns over the spread of Delta variant in the United States and China are encouraging some investors to seek shelter in the Japanese Yen.

In China, the spread of the variant from the coast to inland cities has prompted authorities to impose strict measures to bring the outbreak under control.

In the U.S., Florida and Louisiana were at or near their highest hospitalization numbers of the coronavirus pandemic on Monday, driven by the still-spreading Delta variant, as one doctor warned of the “darkest days” yet.

Daily Forecast

COVID concerns aren’t only limited to the United States and China either. The head of the Japan Medical Association called on Tuesday for a nationwide state of emergency to contain a surge in COVID-19 cases in Olympics host city Tokyo and elsewhere, Kyodo news agency said, as worries grow about a strained healthcare system.

The current price action in the USD/JPY indicates that fear is driving investors into the Japanese Yen for protection. That fear is likely being fueled by worries that the spread of the COVID Delta-variant will slow down the global economic recovery led by weakness in the U.S. and China.