- BOJ Bond Purchase
- Soaring Chinese Debt Load
- U.S-China Tensions
USD/CNY exchange rate edged lower, Monday Asia session, as the Yuan strengthened against the dollar. The Japanese Yen, on the other hand, weakened against the U.S dollar with the USD/JPY edging higher after struggling for direction in recent trading sessions.
The USD/JPY has broken through a key resistance level at ¥107.53, with bulls appearing to be in control. The rally comes at the backdrop of the Yen weakening across the board, with the U.S dollar remaining steady in the wake of a string of positive economic data in the U.S.
Time : 07-06-2020
Pivot : 107.52
Technical View : Long Above 107.65
Target : 107.72 – 107.92
Comments : Neutral
Last Price : ¥107.63
The Japanese Yen came under pressure as Bank of Japan Increased Purchases of Japanese Government bonds maturing in 5 to 10 years to ¥420 billion. The uptick in the purchase is part of the Central Bank yield curve control measure started in 2016. The BOJ routinely carries out bond purchases, all in the effort of keeping the 10-year yield at around 0%.
The USD/JPY also edged higher as traders continued to bet on safe-haven amidst an uptick in risk sentiment in the market. A spike in coronavirus infections is one of the developments fuelling demand for the greenback. Likewise, the U.S dollar continues to strengthen against the Yen as the escalation of Sino-American tension continues to fuel risk sentiment in the market.
The USD/CNY exchange rate, on the other hand, edged lower Monday morning as a pullback from 12-year highs gathered steam. The pair edged lower as the Yen strengthened against a steady U.S dollar. The Yen has strengthened in recent weeks amidst a plethora of positive economic data that affirm Chinese economic recovery.
However, the Yen could come under pressure amidst growing concerns over the rate at which bad debts are escalating in the world’s second-largest economy. The People’s Bank of China is already requiring retail and businesses in the country to start reporting large withdrawals and deposits. Chinese lenders are staring at bad debts amidst the economic slowdown fuelled by COVID-19.
Escalating tensions between the U.S and China over the passing of security law in Hong Kong is another headwind that could fuel risk sentiment sending the USD/CNY higher from current lows.