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USD/JPY Fundamental Weekly Forecast – Likely to Plunge on Coronavirus Fears

The emphasis this week will be on safety. Given the worsening coronavirus problem, I expect global stock markets to open sharply lower and the Japanese Yen to spike higher as investors seek safe-haven protection.
James Hyerczyk

The Dollar/Yen fell last week as traders reacted to the spread of a virus that could have a major impact on the global economy. The news encouraged investors to sell risky assets and move money into the safe-haven Japanese Yen. Conditions have worsened over the weekend, which likely means the Forex pair will open sharply lower on Monday.

Last week, the USD/JPY settled at 109.287, down 0.883 or -0.80%.

Corona Virus Update

Over the weekend, Japan confirmed a third case of infection by China coronavirus, the health ministry said on Saturday. The latest case was confirmed in a woman in her 30’s who lives in Wuhan, the Chinese city at the center of the outbreak. She arrived in Japan with three family members on January 18, the ministry said.

The third U.S. case of the new coronavirus has been confirmed in Orange County, California, the OC Health Care Agency’s Communicable Disease Control Division announced in a press release Sunday.

The World Health Organization (WHO) has so far declined to declare the disease a global health emergency, saying it needs more data. The virus is currently spreading through human-to-human contact and in medical settings, the organization said.

In China, President Xi Jinping on Saturday warned that the spread of the coronavirus presents a “grave situation,” as officials from central China to Hong Kong struggle to stop the spread of the disease that has so far infected more than 1,400 people worldwide and killed 42.

Japan Fundamentals Recap

The Bank of Japan left its ultraeasy monetary policy unchanged while saying the economy will expand slightly faster than earlier thought on the government’s fiscal stimulus, despite inflation rates sticking below the central bank’s 2-percent target.

After a two-day policy meeting, BOJ Governor Haruhiko Kuroda said he is confident that the economy will survive the consumption tax hike in October last year as household spending and business investment will recover soon from a temporary fall.

But Kuroda also warned of uncertainty surrounding the world economy, pointing to risks from the continued trade negotiations between the United States and China following their partial deal, as well as geopolitical concerns in the Middle East.

At the meeting, the BOJ Policy Board decided to keep the short-term interest rate at minus 0.1 percent and guide long-term rates around zero percent. It will also continue with its massive asset purchase program.

Weekly Forecast

The emphasis this week will be on safety. Given the worsening coronavirus problem, I expect global stock markets to open sharply lower and the Japanese Yen to spike higher as investors seek safe-haven protection.

In the U.S., the main reports will be CB Consumer Confidence and Advance GDP.

The U.S. Federal Reserve is widely expected to leave monetary policy unchanged.

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