USD/JPY holding in familiar territory, yen resilient to bid in USD
|- Unprecedented times keeping safe havens in vouge.
- USD/JPY probing the upside while USD attracts a safe-haven bid.
USD/JPY is currently trading at 107.72 between 107.72 and 107.93 the high. The US dollar is firm, despite a risk-on approach in the US markets today, (S&P500 +2.5%), but the yen is also a safe-haven which is holding is own across the board.
The world's financial and commodity markets are changing very rapidly from the pre-COVID status quo. We are seeing incredible weak demand in the commodities sector which will keep currencies such as the yen in favour for its safe-haven status considering its trade surplus advantage.
The canary in the coal mine, (or oil fields) was the remarkable session for oil at the start of this week which will resonate through markets for a long time to come. The May WTI contract was trading at -$37.63 per barrel at the end of the session on Monday and WTI has remained volatile since marking yet another extraordinary chapter in the history of financial markets. However, what it means going forward is more downside in financial and commodity markets as related corporations feel the heat. The investment will be weak and money markets will be seeing flows away from riskier asset classes, likely favouring US Treasuries but also repatriations into the yen.
COVID-19 spreads in Japan, potentially mutating worldwide
On the other hand, COVID-19 is problematic for the yen more so the US dollar at this stage considering how firm the greenback is despite the spread of the virus in the United States. The dollar is in demand regardless as eh world's reserve currency with around 70% of global transactions based in USD terms. However, for Japan, COVID-19 is only just getting started.
Japan, alarmed by rising contagion of the virus and related deaths leading to the spectre of the collapse of the medical system, is rushing to expand testing after weeks of limited its testing for the coronavirus. This follows a decision to expand testing to the entire nation when Prime Minister Shinzo Abe expanded a state of emergency to the entire country, warning of the growing burden on health facilities.
Tokyo now has a record 201 additional cases reported by its governor on Friday, for a total of 2,796. Japan's total infections stand at more than 9,800, with 207 deaths, according to a tally by public broadcaster NHK. That is quite a leap in a relatively short amount of time. Investors might be thinking twice before chasing the yen and will be more inclined to be concerned about the state and threats to the economy.
Meanwhile, what is even more worrisome, in general for markets, is the fact that Chinese scientists are now saying that they believe the virus has mutated rapidly. A report in the South China Morning Post said that this explains the apparent discrepancy in the severity of the symptoms and the mortality rates being seen around the world. This has severe negative implications for lockdowns lifting or for a workable vaccine.
As for where USD/JPY can go, the USD remains a favourite and more obvious choice as volatility looks likely to stay all the while markets are in a state of flux pertaining to the uncertainty surrounding COVID-19.
USD/JPY levels
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