USD/JPY Fundamental Daily Forecast – US-China Spat Could Lead to Yen Regaining Its Safe-Haven Status

The Dollar/Yen is inching lower on Monday as oil prices fell and stocks were under pressure as rising U.S.-China tensions over the coronavirus – and growing unease at the gulf between asset prices and grim reality – turned investors cautious. The range is narrow and the trade thin with China and Japan on holiday.

At 07:26 GMT, the USD/JPY is trading 106.769, down 0.142 or 0.13%.

Traders are also reacting to Friday’s weak U.S. economic news which showed ISM Manufacturing PMI came in at 41.5, better than the 36.7 forecast, but well inside contraction territory. However, the biggest influence on the price action is the U.S.-China spat over the origin of the coronavirus, which put the brakes on optimism about an economic re-start which began last week in earnest when countries around the world eased restrictions.

U.S. President Donald Trump and Secretary of State Mike Pompeo added to worries with fresh efforts to pin blame for the pandemic on China, where the new coronavirus outbreak is believed to have originated.

The latest salvo came from Pompeo on Sunday who said there was “a significant amount of evidence” that the virus emerged from a laboratory in the central Chinese city of Wuhan.

Pompeo did not provide evidence, or dispute a U.S. intelligence conclusion that the virus was not-made. But the comments double down on Washington’s pressure on China as U.S. deaths and economic damage mount.

Daily Forecast

The blame game between the United States and China is expected to intensify this week as both suffer the economic fallout from the pandemic and the disruptions wrought by lockdowns to combat it.

With investors willing to shed risky assets at the start of the week, the real question is which currency will be favored for safe-haven status – the U.S. Dollar or the Japanese Yen.

If Friday’s reaction to the weak U.S. ISM Manufacturing PMI is any indication, then traders are likely to favor the Japanese Yen over the dollar when the U.S. releases numbers this week on ISM Non-Manufacturing PMI on Tuesday and Non-Farm Payrolls on Friday, the latter is expected to show a loss of 2.1 million jobs, which some analysts say is way understated.