What’s happening: The Japanese yen rose against the US dollar with some easing in risk appetite after the Federal Reserve’s announcement yesterday.
What happened: The Japanese currency continued its rally versus the greenback for the fourth consecutive forex trading session as investors sold the US dollar after the Fed announced plans to keep interest rates near zero through 2022.
The yen has climbed more than 2% versus the greenback so far this week, with investors favouring the Japanese currency as a safe-haven choice. The announcement of an emergency budget worth approximately $300 billion by Japan's House of Representatives, the lower house of its parliament, also supported the yen.
Why it matters: The USD/JPY has been on a downtrend, with the Japanese yen rising against most major currencies. The yen became part of the best forex trading strategy amid growing concerns over tensions between the US and China, fuelled further by China's plans to implement a new security law in Hong Kong.
The Japanese economy has been suffering due to the covid-19 crisis. The country’s GDP contracted 2.2% in the first quarter and core machinery orders plummeted 12% in April, significantly worse than the expectations of an 8.6% decline.
To help the economy recover from the impact of the pandemic, the Japanese parliament has approved another stimulus program worth around $300 billion. The budget includes various subsidies for small businesses and cash pay-outs for medical personnel. The bill is expected to be enacted on Friday, following its approval by the upper house.
On the other hand, the US dollar suffered a setback due to protests against police brutality after the death of George Floyd. The US Federal Reserve yesterday announced plans to keep interest rates unchanged at near zero through 2022 and continue with its program to buy bonds. The news exerted further pressure on the greenback.
The USD/JPY fell to a one-month low to trade at 106.90 in today’s forex session.
What to watch: Currency market participants look forward to the Bank of Japan’s monetary policy meeting next week. The JPY outlook remains positive, especially with expectations of continued social unrest in the US and Western Europe. Forex markets also await the jobless claims data from the US, which is expected to impact the US dollar’s performance today.