USD/JPY holding steady in 107's as markets lean bullish

USD/JPY has been holding on in the 107 handle and trading between 107.15 and 107.30 this session, settled after the Bank of Japan yesterday. where the price dropped 50 pips to 107.00 on the announcements of the news measures.

It was a positive start to the week as the BoJ’s decision to adopt unlimited QE. This news followed the S&P’s decision not to downgrade Italy last Friday and notions of a slowdown in the news cases of COVID-19 in developed nations first hit by the virus. Subsequently, the S&P 500 and the Dow were up 1.5% and the Euro Stoxx was up 2.6% and the FTSE 100 up 1.6%.

Markets have quietened down in recent days with an element of risk-on creeping back in. We are seeing a plateau in coronavirus cases leading to gains in global equities. Yesterday's opening bid in Asian markets extended to Europe and the US, with a widespread discussion of relaxing lockdowns. European nations and some states of the US are seeking to get its population back to work with an easing of measures designed to slow the spread of the virus and there is a feeling of mission accomplished in the markets. 

WHO warns of upward trends in Covid-19

To date, the novel coronavirus, which emerged late last year in the central Chinese city of Wuhan, has already infected 2.97 million and claimed 205,948 lives, according to the latest Reuters tally. The head of the World Health Organization (WHO) has warned against complacency in the fight against the coronavirus, saying the disease "will be with us for a long time". Dr Tedros Adhanom Ghebreyesus also warned of upward trends in Covid-19 cases in Africa, Eastern Europe, Central America and South America. He said that lifting lockdowns could cause infections to "reignite".

Today, Reuters reported "that the coronavirus pandemic is “far from over” and is still disrupting normal health services, especially life-saving immunisation for children in the poorest countries, the head of the World Health Organization (WHO)." “We have a long road ahead of us and a lot of work to do,” WHO Director-General Tedros Adhanom Ghebreyesus told a virtual news conference in Geneva, adding that the second wave of infections could be prevented with the right actions.

Years of BoJ work unravelled in a matter of weeks

"This shutdown look set to undo years of work by both the BoJ and the government to push back on the issues of low growth and disinflationary pressures," analysts at Rabobank explained:

"If policymakers fail to contain the pressure on the real economy and on employment, there is a risk that the credibility of both will be tested. For now, we expect USD/JPY to hold close to current levels on a 3 month view.

While the USD has proved itself to be the ‘go-to’ safe haven of many investors over the past couple of months, the JPY is set to remain particularly sensitive to regional news and currently to rumours regarding the health of N. Korea leader Kim Jong Un."

USD/JPY levels