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 near 30% and the market reaction has been chaotic. Stock markets have tumbled and foreign exchange traders are struggling to assess market moves, which has prompted investors to shed risky assets like the US dollar and flock to currencies such as the Japanese yen, which is perceived to be safer.

The Japanese yen (JPY) made gains of near 3% on the US dollar (USD) on Monday and has also rallied against pound Sterling (GBP), with the pound to yen rate down some 2.5%. The pound’s decline has also come off the back of reports that Brexit trade talks between the EU and the UK will be delayed due to the COVID-19 disease remaining the prime focus.

Britain’s loose monetary policy has however allowed the British pound to make a mild recovery on its lost momentum. The pound steadied against major currencies earlier this week as foreign exchange markets await the release of Britain’s new economic data on Spring budgets this Wednesday. The pound, which will be hoping to extend its recovery, has already clawed back some of its losses against the euro and hopes that the government’s upcoming budget plan will include fiscal policy is also supporting Britain’s economic outlook.

Whilst investors are expecting the Bank of England (BoE) to increase spending and take measures to protect the economy until the data is released, the strength of the pound is limited and the GBP/JPY exchange rate may continue to come under pressure.

This week the yen to pound has been trading between lows of JPY 132.621 and highs of JPY 137.105, (at time of writing).

Japan Teeters on The Edge of a Recession

Japan’s finance minister warned against pushing up the Japanese yen on Monday and the Bank of Japan may be forced to take bolder financial steps should the Japanese yen 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 competitivity, 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 country’s likeliness to go into recession. Japan’s economy is 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.

Reports have detailed that the Japanese government are implementing the second round of emergency measures to help keep the outbreak under control but with the virus threatening to be around for the long-term, they may struggle to keep the country afloat.

The coronavirus, which has now infected over 110,000 individuals across the globe is wreaking havoc on the global economy and as a result, the world’s major currencies are increasing in volatility. The euro which had remained strong, despite Italy being heavily hit by the coronavirus has fallen from highs. It continues to be a top performer, but declined against the US dollar and the British pound on Tuesday, with the EUR/USD dropping below USD 1.14 and the GBP/EUR exchange rate moving back above EUR 1.15.

The US Dollar and British Pound May Strengthen If Europe Worsens

With Italy on complete lockdown after confirming 500 deaths and 9000 coronavirus cases, there are growing concerns surrounding Europe’s economy which may be encouraging investors back to the safety of other currencies.

France, Spain 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 and following US President Trump’s announcement to hold a news conference discussing economic measures that may need to be implemented in response to the virus.

The Japanese yen began losing most of its gains against the US dollar after Monday’s blistering rally and the same could be expected with the British pound, so long as the UK doesn’t introduce an Italian-style lockdown.

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