USD/JPY Fundamental Daily Forecast – ‘Risk-Off’ Theme Increasing Demand for Safe-Haven Protection

The Dollar/Yen is trading lower on Thursday in reaction to weaker U.S. equity markets and another round of lower U.S. Treasury yields. Both moves are early indications that today is going to be a “risk-off” session.

Additionally, there is growing speculation the Fed will make another 25 basis point rate cut in less than two weeks at its regularly scheduled monetary policy meeting.

The selling pressure was strong enough to erase all of yesterday’s gains and turn the Forex pair lower for the session. The move has also put the August 26, 2019 bottom at 104.463 on the radar as a potential downside target.

At 10:48 GMT, the USD/JPY is trading 106.940, down 0.612 or -0.57%.

Low U.S. yields and the prospect of even more monetary easing added pressure to the dollar, though data showing U.S. services activity at a one-year high on Thursday had pushed it higher. Former Vice President Joe Biden’s victories in the Democratic primaries also helped the dollar on Thursday. Biden is considered less likely to raise taxes and impose new regulations than rival Bernie Sanders.

But the coronavirus outbreak weighed more strongly on the dollar and other major currencies. Mainland China reported a rise in new infections on Thursday, deaths are mounting globally, Italy has closed its schools and California has declared a state of emergency as cases there increase.

Also on Thursday, the Fed had mentioned the epidemic 48 times in its latest Beige Book report, suggesting policymakers were highly concerned about the economic data of the disease. Furthermore, money markets were pricing in another 25 bps cut from the current 1% to 1.25% range at the next Fed meeting on March 18-19 and a 50% bps cut by April.

BOJ Kuroda Offers Bleak View on Economy, Warns of Damage from Coronavirus

The coronavirus outbreak could inflict serious damage on the Japanese economy, Bank of Governor Haruhiko Kuroda said on Wednesday, stressing the central bank was ready to take “appropriate action” to underpin a fragile recovery.

The remarks came as fears of recession put pressure on the BOJ to follow in the footsteps of other central banks and ramp up stimulus at this month’s rate review.

“If the epidemic is prolonged, it could also affect production,” he said. “We need to be mindful that the impact from the outbreak could be big,” Kuroda said, adding that consumer sentiment was already being hurt.

“We will carefully watch economic and market developments, and take appropriate action as needed,” he said.

Meanwhile, Prime Minister Shinzo Abe told the same parliament committee that the government would take “sufficient and necessary” fiscal steps to fend off economic threats.