USD/JPY Fundamental Daily Forecast – Safe Haven Buying, New Stimulus Plan Drive Yen Higher

Flight-to-safety buying is driving the USD/JPY lower on Monday. Investors are reacting to reports that North Korea’s Foreign Minister Ri Yong Ho, accused President Trump of declaring war on the rogue nation. Ri was reacting to American bombers flying in international airspace east of North Korea in a symbolic show of military force on Saturday. He also said that North Korea could target planes even when they are not flying in North Korean airspace.

“The whole world should clearly remember it was the U.S. who first declared war on our country,” he said.

“Since the United States declared war on our country, we will have every right to make countermeasures, including the right to shoot down United States strategic bombers even when they are not inside the airspace border of our country,” he added.

U.S. stocks sold off on the news affecting the carry trade which made the Japanese Yen a more attractive assets. U.S. Treasury yields were also down, limiting gains in the U.S. Dollar.

Yen investors were also reacting to concerns over elections in New Zealand and Germany.

Earlier in the session, Japanese Prime Minister Shinzo Abe ordered his cabinet to compile new economic stimulus measures in a package worth around 2 trillion yen ($17.80 billion) by the end of the year.

Abe told his top advisory panel that the package should focus on subsidizing education, child-care costs, and on boosting corporate investments to improve productivity.

In a separate speech, Abe called for an election a year early and said he would dissolve parliament on Thursday. He added that he was seeking a fresh mandate to overcome “a national crisis” amid rising threats from North Korea.

Abe did not set a date for the vote but most believe it to be October 22. Speculation is that he called for the election to capitalize on renewed popularity due to how he has handled the current situation with North Korea. In July, his ratings had dropped to less than 30% due to political scandals, but then recovered to above 50% in September.

The sell-off in the USD/JPY is essentially being fueled by safe haven buying into the Japanese Yen and optimism over Abe stimulus plan.