Japanese Yen Rises as Investors Seek A Virus Safety Currency

The coronavirus outbreak has continued to play havoc with financial markets as unnerved investors scramble to find a safe haven currency.

After the Organisation of the Petroleum Exporting Countries (OPEC) supply deal failed to come through, Saudi Arabia slashed oil prices to nearly 30% in 2020 and the market reaction was chaotic. Stock markets tumbled and foreign exchange traders struggled to assess market moves, which prompted investors to shed risky assets like the US dollar (USD) and flock to currencies such as the Japanese yen (JPY), which is perceived to be safer.

Though the US dollar (USD) sentiment has improved over recent weeks, the Japanese yen (JPY) still appears to be in high demand, with the US dollar falling 0.22% against the Japanese yen (JPY) during today’s session at JPY 108.58. The British pound (GBP) has also slipped against the Japanese currency, with the pairing standing at JPY 149.71. The British pound’s (GBP) decline has also come off the back of reports that a no deal Brexit could still be possible despite the trade arrangement reached last December, as the EU are yet to ratify the agreement.

The British pound (GBP) made a strong recovery against its major currency competitors at the start of the year as a result of its impressive vaccination campaign. Outlook for the UK economy also began to improve following the Spring budget which took place at the beginning of this month as Chancellor Rishi Sunak gave encouraging comments on the UK’s economic future. The British pound (GBP), which will be hoping to extend its recovery, is set to claw back some of its losses against the euro (EUR) and US dollar (USD) over the coming weeks.

Whilst the Bank of England (BoE) recently stated that interest rates and quantitative easing will remain unchanged, the strength of the British pound (GBP) is currently limited and the GBP/JPY exchange rate may continue to come under pressure.

Japan’s economy struggles during Q1

Japan’s finance minister has previously warned against pushing up the Japanese yen (JPY), commenting that the Bank of Japan (BoJ) could be forced to take bolder financial steps should the Japanese yen (JPY) continue to rise. The country can’t afford to have a strong currency as it relies heavily on exports to drive economic growth and the yen gains are increasing competitiveness, which is hurting the Japanese economy.

The government are trying to manage the financial strain caused by the impact of the coronavirus but recent Gross Domestic Product (GDP) growth figures have escalated concerns about the future of Japan’s economy. The country has been in a highly fragile state and there has been a sharp decline in economic growth due to slow exports, a slam in supply chains and a decline in tourism; with projections looking just as gloomy.

Following the recent economic struggles, Japan’s data for Q1 is expected to be disappointing, as the Ministry of Finance’s latest survey revealed that Japanese exports fell by 4.4% year on year in February.

Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute stated that “although vaccinations have started in Japan, it will take time to yield its impact, so the economy is forecast to go through some ups and downs. We expect the economy will pick up from the second quarter, but it will be difficult to regain soon what it will lose in the first quarter.”

The coronavirus, which has now infected over 457,000 individuals across Japan, has wreaked havoc on the global economy and as a result, the world’s major currencies are increasing in volatility. The euro (EUR) which had remained strong, has since fallen against some of its major currency competitors as a result of rising infections across the Eurozone. It continues to be a top performer but declined against the US dollar (USD) this week, with the EUR/USD dropping below USD 1.19, though has risen against the British pound (GBP), which stands at EUR 1.16.

The US Dollar and British Pound May Strengthen If Europe Worsens

The majority of regions of Italy have re-entered complete lockdown following a spike in coronavirus cases, escalating concerns surrounding Europe’s economy which may be encouraging investors back to the safety of other currencies.

France, Poland and Germany are also fuelling foreign exchange trader fears as they are also beginning to implement extreme measures to prevent the virus from spreading. The US dollar has already started to recover on the back of this as well as the recent passing of Joe Biden’s coronavirus stimulus package.

Pound sterling (GBP) investors will be hopeful for UK economic resistance and further information released from the European Central Bank (ECB) which will hint towards any prospects of a recession in the Eurozone. Pound Sterling (GBP) would benefit greatly should that be the case and foreign exchange traders should see British pound to yen (GBP/JPY) and British pound to euro (GBP/EUR) exchange rates rise.