USD/JPY Fundamental Daily Forecast – Supported by Safe-Haven Buying Amid Stock Market Weakness

The Dollar/Yen is trading slightly lower but up from its lows as investors seeking protection from the weakness in the global equity markets are moving money in the U.S. Dollar. Volume is on the light side despite the volatility in the stock market as investors avoided big moves before a Bank of Japan policy meeting ending Tuesday.

No major changes are expected, but some investors may focus on Governor Haruhiko Kuroda’s views on growing interest in its yield curve control policy. U.S. central bankers discussed the option of adopting yield curve controls to cap bond yields, Federal Reserve Chairman Jerome Powell said last week.

At 09:16 GMT, the USD/JPY is trading 107.287, down 0.066 or -0.06%.

Traders are also monitoring a spike in coronavirus cases in the United States, as fears grow that another outbreak could inflict greater damage on the global economy.

Global Equity Markets Extend Last Week’s Sharp Losses

Stocks in Asia dropped on Monday as investors weighed the potential impact of recent spikes in coronavirus cases. In Japan, the benchmark Nikkei 225 Index dropped 3.47% to close at 21,530.95 while the Topix index slipped 2.54% to end its trading day at 1,530.78.

European stocks were lower Monday morning amid concerns over a resurgence of the coronavirus in Asia and the U.S. as lockdowns are eased. Markets in Europe ae following their Asian and U.S. counterparts lower as concerns over a second wave of coronavirus cases dominate market sentiment.

In the U.S., futures on the Dow Jones Industrial Average dropped 600 points, implying a fall of more than 700 points at Monday’s open. S&P 500 and NASDAQ 100 futures also pointed to Monday opening declines for the two indexes.

BOJ Looks to Sit Tight While Assessing Coronavirus Response

The Bank of Japan (BOJ) is expected to leave its main policy levers untouched Tuesday as it assesses a raft of measures already taken to support the pandemic-hit economy.

The BOJ is likely to leave interest rates and asset purchases unchanged at the end of its two-day meeting, which began Monday. Officials will consider the impact of measures taken so far to soften the impact from the virus and don’t see a pressing need now for any further major moves, people familiar with the matter said.

Many economists surveyed by Bloomberg expect the estimated size of a BOJ loan program linked to government lending to rise after Prime Minister Shinzo Abe’s administration announced an expansion of the lending measures last month, the Japan Times reported.

Market fluctuations last week are from the volatility observed in March, and continued stability in the Yen has given the BOJ breathing room to sit tight for the time being. The economy is also likely past its weakest point, following the lifting of the national state of emergency in late May and the gradual easing of lockdowns in key export markets.

Daily Forecast

Setting aside the low volume ahead of the BOJ meeting, USD/JPY investors are likely to react to a volatile move in the U.S. equity markets today. Another steep plunge is likely to drive investors into the safe-haven U.S. Dollar. A flat to higher trade is likely to be more supportive for the Japanese Yen.

For a look at all of today’s economic events, check out our economic calendar.