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Japanese Yen Weakens As BoJ Warns of ‘Very High’ Uncertainty Amid COVID-19 Pandemic

October 7, 2020 at 16:04 by Andrew Moran

Japanese currency and coinsThe Japanese yen is under pressure in the middle of the trading week as the central bank warned that economic uncertainty remains “very high” because of the coronavirus pandemic. But the yen could find support on macroeconomic data suggesting the contraction in the world’s third-largest economy might have subsided. Could the traditional safe-haven asset continue its strong 2020 in the final quarter?

Speaking in a video message to an annual meeting of securities firms, Bank of Japan (BoJ) Governor Haruhiko Kuroda warned that the nation’s economic and price outlook is “very high” and the COVID-19 public health crisis could continue to impact domestic and global growth. As Tokyo emerges from the steep downturn, Kuroda still thinks the country is headed toward a moderate recovery because the central bank is ready to employ additional measures to cushion the blow.

There is very high uncertainty on the economic and price outlook. Risks are skewed to the downside. We will closely monitor the pandemic’s impact on the economy and markets, and won’t hesitate to take additional easing steps as needed.

Kuroda’s comments come as the Japanese government upgraded its economic assessment for the first time since May 2019. The Cabinet Office said that the index of coincident economic indicators climbed in August, suggesting that business activity has stopped contracting. This is positive news for new Prime Minister Yoshihide Suga, who has made reviving the economy and beating the virus a central tenet of his government.

The Coincident Index, which measures factors like factory output, employment, and retail sales numbers, rose from 78.3 in July to 79.4 in August. The Leading Economic Index advanced from 86.7 to 88.8 in August.

Earlier this week, the Jibun Bank services purchasing managers’ index (PMI) edged up to 46.9 last month. The composite PMI jumped to 46.6 in September.

Meanwhile, Japanese ministries have requested a $997 billion in additional budgetary funds for the next fiscal year, which begins in April. The Ministry of Finance confirmed that many submitted requests did not specify the total amount of spending, allowing it to review requests and finalize amounts. That said, the total figure would exceed the previous high of approximately $900 billion as officials attempt to stop the spread of the highly infectious respiratory illness and the economic fallout.

Wataru Ito, state minister of finance, told reporters on Wednesday:

We remain committed to achieving both economic revival and fiscal reform, and we’ll overcome the coronavirus crisis to pass the future on to the next generation.

The USD/JPY currency pair rose 0.31% to 105.97, from an opening of 105.63, at 15:58 GMT on Wednesday. The EUR/JPY advanced 0.61% to 124.70, from an opening of 123.97.

If you have any questions, comments, or opinions regarding the Japanese Yen, feel free to post them using the commentary form below.

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