- Japan Economy Contractions
- BOJ Optimism
- Trade Talks Impact
USD/JPY was on a recovery mode, Wednesday morning, after sliding to one-month lows. The slide came as news of further easing in lockdown restrictions and optimism by Bank of Japan favored the Yen against the dollar.
BOJ Stimulus Impact
Amidst the recent slide lower, the pair continues to trade sideways after finding support above the ¥106 level. U.S dollar resurgence amidst a spike in coronavirus infections and global economic recession concerns has prevented the pair from sliding below the key support level.
The COVID-19 pandemic has severely battered Japan’s economy. After registering two consecutive quarters of contraction, Bank of Japan policymakers have warned that the economy is likely to remain in severe situation for the time being.
However, the economy continues to show signs of bottoming out something that supports the Yen in the currency markets. Adjustments in excess production capacity, as well as improvements in household spending behavior, also continue to fuel recovery hopes.
Bank of Japan policy measures designed to accelerate recovery from current lows is one of the catalysts that continues to fuel bids on the Yen against the dollar. The central bank has already cut interest rates to the negative territory.
The central bank has also committed to financing firms to avert a surge in unemployment levels. The Special Program to Support Financing is one such program that continues to fuel liquidity in the economy.
USD/JPY Range Bound
However, the USD/JPY pair has remained range-bound due to a resurgent dollar after weeks of weakness. Sentiments around the U.S dollar have improved in recent days amidst concerns of the second wave of coronavirus infections.
Receding hopes of a successful trade talk between the U.K and Japan also continues to weigh heavily on the Yen restricting further gains against the dollar. Trade talks tussle between the U.S and China should continue to influence risk sentiments in the market likely to influence USD/JPY price action going forward.
Looking ahead, traders await the release of U.S House price index and FED Evans’s speech likely to sway sentiments on the dollar conversely USD/JPY exchange rate.