USDJPY Price Outlook – Japanese Yen Set to Fall

The USDJPY price outlook shows that the pair declined to an intraday low of 110.35 today. The pair has been on a significant decline since Friday last week when it was trading at 112.22. Why is the Yen set to fall?

25 February 2020 | HYCM – I came across an interesting article on Bloomberg making the case for Yen weakness regardless of whether the coronavirus outbreak worsens or not.

Reasons why the Yen is set to weaken as it shakes its safe haven status

Yesterday, the Japanese Yen was operating in its normal function as a safe haven and showed strength throughout the day. Nevertheless, the Yen’s safe-haven days may be coming to an end. The reasons are as follows:
  • As global interest rates fall towards zero and beyond the focus on the growth potential of countries is more of a driver than interest rates.
  • A technical recession for Japan looks almost certain and there has been a recent run of poor Japanese data. November Japan’s business cycle leading indicator hit 2009 levels, Initial 4QGDP estimates came in at -6.3% q/q/ as private consumption dropped the most since 2014.
  • Corporate bankruptcies increased by 16.1% y.y in January this year, the adjusted merchandise trade balance has been negative for 11 months and machine tool orders have fallen by at least 27% y/y in each of the last 12 months.
  • Yen outflows have been accelerating with the largest purchase of foreign debt since September 2018 by Japanese pension funds
  • Japan’s key auto industry is hit by supply chain issues from the coronavirus impact. Furthermore, 30% of Japan’s exports go to China and South Korea, the two worst affected area.
  • The coronavirus outbreak will badly impact the coming Tokyo Olympics in July. This may keep many foreign supporters away.

What if coronavirus impact worsens?

So, in conclusion, the argument for a weakening Yen is that if the coronavirus impact worsens then gold, silver and US Treasuries will be better safe havens than the Yen.
If the coronavirus impacts recede then the growth story will come back into focus and the Yen will weaken again as Japanese growth is weak. So, watch out for this dynamic playing out and don’t just assume that the JPY will carry on strengthening.
What’re your thoughts on the JPY’s recent movements? Let us know in the comment section below.


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