USD/JPY Fundamental Weekly Forecast – Fear of Global Recession Makes Dollar Highly Desired Liquid Asset

The Dollar/Yen firmed last week as investors took shelter in the U.S. currency amid worsening economic fallout from the coronavirus pandemic. Investors largely shrugged off the U.S. Non-Farm Payrolls report that showed massive job losses of 701,000 last month, compared with expectations of 100,000 lost jobs.

March’s contraction abruptly ended a historic 113 straight months of employment growth. The Labor Department also revised February’s number upward to 275,000 job gains. The unemployment rate rose to 4.4% from 3.5% the previous month.

“The plunge in non-farm payrolls in March, which is already close to the worst monthly declines during the global financial crisis, suggests the coronavirus pandemic started to decimate the economy even sooner than we thought,” said Andrew Hunter, senior U.S. economist at Capital Economics.

The non-farm payrolls report followed Thursday’s data showing initial claims for U.S. unemployment benefits rose to 6.65 million in the latest week from an unrevised 3.3 million the previous week. The figures far exceeded the median estimate of 3.50 million in a Reuters survey of economists.

Japanese Economic Data

The Japanese government and the Bank of Japan had to be happy with the drop in the Japanese Yen, but more importantly the better-than-expected economic data.

Last week, the USD/JPY settled at 108.468, up 0.491 or +0.45%.

Preliminary Industrial Production came in at 0.4%, beating the 0.0% estimate. The previous month was also revised higher to 1.0%.

Retail Sales were a big surprise, jumping by 1.7%. This was much better than the -1.5% forecast and -0.4% previous read.

The Tankan Manufacturing Index came in lower at -8, but this was better than the -10 forecast. The Tankan Non-Manufacturing Index was 8, also higher than the estimated 3.

Finally, the Final Manufacturing PMI was 44.8, matching the forecast.

Weekly Forecast

While the Fed’s monetary policy easing should keep the dollar from surging, the dire economic outlook is expected to keep the dollar’s gains this year intact in the near term.

We’re looking for a global recession due to the coronavirus so we expect the U.S. Dollar to continue to outperform the most exposed currencies to global trade. The greenback is being viewed as a safe haven asset based on the fact that it is the world’s reserve currency and also a high quality liquid asset due to its ties to Treasury debt.