Following strong US Dollar performance in recent weeks on rising hopes that the US and China were closing in on a potential ‘phase one’ trade deal, the US Dollar to Japanese Yen (USD/JPY) exchange rate has tumbled this week. Weak US data, combined with higher market demand for safe haven currencies, have led to strong demand for the Japanese Yen and this has meant investors are largely brushing over recent Japanese data.
Since markets opened this week, USD/JPY has tumbled from the opening level of 109.49 and shed around half a Yen. USD/JPY briefly touched on a half month low of 108.44 yesterday while the US Dollar was being sold on weak US data, but since then the US Dollar’s movement has steadied slightly.
At the time of writing on Thursday, USD/JPY is trending near the level of 108.89 – meaning it has shed most of last week’s gains.
US Dollar (USD) Exchange Rates Remain Unappealing amid Poor US Data and Global Trade Jitters
At the beginning of the week, the US Dollar experienced a sharp selloff as investors reacted to news that the US manufacturing sector had contracted more than expected in November.
ISM’s manufacturing PMI from November, a key indicator of the US factory sector, was forecast to have recovered slightly from 48.3 to 49.2 but instead worsened to a contraction of 48.1.
The deeper than expected contraction worsened concerns about the health of the US economy and caused US recession speculation to flare up. This led to a US Dollar slump.
Since then, trade news and US data has done little to make investors more optimistic about the US outlook either.
US President Donald Trump worsened concerns about the US economy being impacted by the US-China trade war for an extended period of time, thanks to his comments that the US and China may not reach a trade deal for another year.
Then on Wednesday, the US economic outlook worsened further as ISM’s non-manufacturing PMIs fell short of expectations too, slowing to just 53.9.
Due to this week’s poor US data, investors are also more concerned about the US job outlook and how it could influence the Federal Reserve ahead of tomorrow’s key US jobs data.
Japanese Yen (JPY) Exchange Rates Benefit from Safe Haven Demand and Japan’s Fiscal Stimulus
Since US President Trump’s comments worsening concerns about an extended US-China trade war, investors have been more eager to buy safe haven currencies like the Japanese Yen.
However, while the Yen has been stronger on safe haven demand, safe haven demand has also been mixed. There is still lingering speculation that the US and China remain fairly close to a ‘phase one’ trade deal.
Even amid mixed safe haven demand though, the Japanese Yen has been benefitting from the latest Japanese financial news.
Japan’s government has indicated that it will introduce a new fiscal stimulus package in order to help Japan’s economy, taking some pressure off the Bank of Japan (BoJ) which until recently had been speculated as being under pressure to further loosen monetary policy.
According to Harumi Taguchi, Tokyo Principal Economist at IHS Markit:
‘In any country, the positive impact of extra monetary stimulus is limited, which is especially true in Japan and Europe where rates have turned negative. You have no effective choice but to execute fiscal measures to support growth,’
USD/JPY Exchange Rate Forecast: US Non-Farm Payroll Could Cause Big Movement
The US Dollar to Japanese Yen exchange rate is on track to end the week lower, but if upcoming key US data beats market forecasts it could boost the US economic outlook.
Key US data due for publication through the end of the week includes today’s US trade and factory orders results, but tomorrow’s US Non-Farm Payroll report is likely to be especially influential.
The US NFP print is closely watched by markets and the Federal Reserve. As a result, if upcoming US job stats beat forecasts they could soften concerns that the US economy could fall into recession.
This could lighten Fed interest rate cut speculation and help USD/JPY to recover slightly before the end of the week.
On the other hand though, USD/JPY could be in for even deeper losses if the data falls short of forecasts, or if US-China trade relations worsen.
As for the Japanese Yen, US Dollar to Japanese Yen exchange rate investors are more likely to pay attention to safe haven demand than tomorrow’s Japanese economic index stats.