USD/JPY Fundamental Weekly Forecast – Re-Opening U.S. Economy is Major Price Driver

The Dollar/Yen finished marginally higher last week after posting an uneventful two-sided trade.

The Forex pair fell to a two-week low as risk sentiment returned to the market following better-than-expected economic data from China (Trade Balance), which painted a less gloomy picture than feared following the coronavirus outbreak there.

Last week, the USD/JPY settled at 107.554, down 0.081 or -0.08%.

The Dollar/Yen hit a one-week high later in the week as investors fled to safe-haven assets following the release of weekly U.S. jobless data which showed a record 22 million Americans have sought unemployment benefits in the last month, erasing nearly all job gains since the Great Recession.

Following Thursday’s rise, the dollar ticked lower on Friday as investors, cautiously optimistic about the results of a drug trial and President Donald Trump’s plan to reopen the economy, regained some appetite for risk.

In economic news, Revised Industrial Production came in well below expectations at -0.3%. Traders were looking for a 0.4% rise. Tertiary Industrial Activity fell 0.5%, and the previous month was revised lower to 0.3%.

In coronavirus-related news, Japanese Prime Minister Shinzo Abe expanded a state of emergency to include the entire country on Thursday and said the government was considering cash payouts for all in an effort to stem the coronavirus outbreak and cushion the economic downturn.

Weekly Forecast

Using last week’s price action as our guide, we’re going to assume that the direction of the USD/JPY this week is likely to be determined by investor demand for risk, and that is being primarily influenced by the news regarding the flattening of the coronavirus-curve. Investors have basically priced in recessions in the United States and Japan so stale economic data is not likely to dictate the price action. Traders are looking forward, not backward.

The International Monetary Fund, which expects Japan’s economy to contract by 5.2% this year, has urged it to boost fiscal spending and focus on easing the hit to growth.

That being said, Abe said the government was considering cash payouts of 100,000 yen ($930) for everyone, an attempt to cushion the blow to the world’s third-largest economy.

The government’s supplementary budget plan has set aside funds for cash payouts of 300,000 yen to households whose incomes have been hit by the virus, but that will be changed to the individual payouts, a government official with direct knowledge of the matter earlier told Reuters.

It seems the Japanese government is poised to make the same moves as the other major governments, albeit a little later in the crisis.

This week, USD/JPY traders are likely to pay more attention to what President Trump has to say about re-opening the U.S. economy, and any news regarding the treatment or cure of the coronavirus. Good news is likely to weaken demand for the safe-haven U.S. Dollar. Bad news will drive investors back to the safety of the greenback.