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James Hyerczyk

The Dollar/Yen is trading higher late Monday, helped by increased demand for risky assets and concerns that a jump in the number of coronavirus cases in Japan will do further damage to the already wounded economy. At 13:50 GMT, the USD/JPY is trading 109.060, up 0.591 or +0.55%.

Demand for Risk Surges as US Coronavirus Case Growth Rate Appears to Slow Down

U.S. equities jumped on Monday, rebounding from sharp losses in the previous week, as the number of new coronavirus cases in the U.S. appeared to slow down.

Early buyers were encouraged by data that shows a slowing in the number of daily U.S. coronavirus cases, although it is still early to determine a lasting trend.

The market was also boosted after the Trump administration noted on Sunday there are signs of stabilization in hospital rates, helping to lift Wall Street sentiment on Monday. Meanwhile, New York State reported 594 new coronavirus deaths on Sunday, fewer than 630 on Saturday, marking the first daily decline in coronavirus-related deaths, according to Governor Andrew Cuomo.

Slowing death rates in Europe also offered up some hope that the U.S. would be nearing its peak soon as well and that social distancing measures are working.

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Japan to Declare Coronavirus Emergency

Japan is to impose a state of emergency in Tokyo and six other prefectures as early as Tuesday to contain the coronavirus, Reuters reported.

Domestic infections topped 4,000, Jiji news reported, and 93 have died – not a huge outbreak compared with some global hot spots. But the numbers keep rising, with particular alarm over the spread in Tokyo, which has more than 1,000 cases including 83 new ones on Monday, Reuters reported.

“Japan won’t, and doesn’t need, to take lockdown steps like those overseas,” Prime Minister Shinzo Abe told reporters, citing the opinion of infectious disease experts. “Trains will be running and supermarkets will be open. The state of emergency will allow us to strengthen current steps to prevent an increase in infections while ensuring that economic activity is sustained as much as possible,” he said.

An emergency, which Abe said would last about a month, will give governors authority to call on people to stay at home and businesses to close. With no penalties for ignoring the requests in most cases, enforcement will rely more on peer pressure and respect for authority, and was unlikely to be as rigorous as lockdowns in many other countries, according to Reuters.

Japan to Launch New Stimulus Measures

Abe also said the government will launch a stimulus package of about 108 trillion yen, including more than 6 trillion yen for cash payouts to households and small businesses and 26 trillion yen to allow deferred social security and tax payments.

It was not immediately clear how much of that package would be new government spending.

Short-Term Outlook

In our opinion, the surge in demand for higher risk assets had more to do with the rise in the USD/JPY than the declaration of a state of emergency. Expectations of a new stimulus package probably weighed on the Japanese Yen also because it would mean more cash will be injected into the economy.

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