- China anticipates its 2020 budget deficit at around 3.6% of its GDP.
- Japan’s central bank schedules emergency meeting for financial support measures.
- The asset purchase program will likely be expanded.
The USD/CNY exchange rate has maintained its strong bullish momentum on Friday morning as China faces a notable budget deficit on account of the coronavirus and its impact on the economy. Meanwhile, the USD/JPY exchange rate demonstrated bearish momentum on Friday morning on the same day that the Bank of Japan is scheduled to hold an emergency meeting. The topic of discussion will be financial support measures that should be rolled out to financial institutions in an attempt to increase lending to firms affected by the coronavirus.
The USD/JPY bearish momentum currently targets key support areas at 107.25 and 106.99 if it trades short below 107.42. The bullish momentum highlights the investor concern regarding the current economic situation in China. However, the outcome of the meeting may lend some gains to the Yen.
Both China and Japan’s economies have been greatly affected by the coronavirus and that has translated to weaker performance for their currencies. China has so far experienced a 6.8% economic contraction this year and the country did not reveal its growth target this year on account of the market uncertainty. However, it does expect a budget deficit that is equivalent to 3.6% of the country’s entire GDP compared to 2.8% in 2019.
Meanwhile in Japan, the economic situation has grown more worrying with the coronavirus causing a recession. The IMF already issued a warning against lowering interest rates and the BOJ plans to reveal measures to counter the declining economic condition during the Friday meeting. There is speculation that the meeting will feature a rate cut or an expansion of the existing asset purchase program.
USD/CNY and USD/JPY outlook
The economic policy measures that the central banks of Japan and China are planning will likely provide a buffer for their currencies and lead to some improvements. On the short-term outlook, economic data released on Friday afternoon may have some impact on the exchange rate performance. Some of the market-oriented events scheduled on Friday include a speech by Federal Reserve chairman in the U.S which is expected to put pressure on the U.S dollar.
The Chinese Yuan will likely be affected by the emergency meeting depending on treasury bond purchases and rate cuts. The emergency meeting outcome will have some effect on the Japanese Yen amid other data such as the BOJ policy rate and the National Core CPI data on a year-over-year basis which is of course expected to demonstrate a decline.