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USD/JPY forecast for 07.05.2020

May 7, 2020

May 7, 2020

Yen will pass the testDmitri Demidenko

US jobs report will test the willingness of the USD/JPY bears to go

ahead

How to choose the best among the weakest? You should find the least suffered! The pandemic did much more harm to the US and the EU than to Japan. So, investors return to the yen. The [EUR/JPY][1] and the [USD/JPY][2] are falling amid the increased geopolitical tensions and the consolidation of the US stock indexes following the roller-coaster in the March-April period. Besides, they need to find some other currency to replace the greenback, as its long-term outlook seems to be weak.

To anticipate changes in the currency rates under the current conditions, the speed of the GDP recovery is more important than the depth of the recession. On a global scale, the GDP recovery may be set back by the escalation of the US-China trade war. Donald Trumps can’t justify new tariffs citing the alleged laboratory origin of COVID-19. However, the U.S. president will do saying that China fails to meet the requirements of the phase-one trade deal. The Chinese economy has just started recovering, so, it can’t increase the volume of imports from the USA by $77 billion in 2020! According to Bloomberg experts, China’s GDP will grow bu just 1.8% this year.

In 2019, Japan’s stocks and the yen were quite responsive to the escalation of the US-China trade war. The TOPIX was 7% down after Donald Trump announced an increase in tariffs on China’s imports by $200 billion. Later, the stock index reached its eight-month low in August when the U.S. president announced new tariffs. Lower risk appetite and exiting risk hedging trades by foreign investors sent the [USD/JPY][2] down

The reaction of TOPIX to the US-China trade war

![LiteForex: USD/JPY forecast for 07.05.2020][3]

Source: Bloomberg.

Dynamics of USD/JPY and Nikkei 225

![LiteForex: USD/JPY forecast for 07.05.2020][4]

Source: Trading Economics.

An important growth driver for the yen may be the loss of the dollar’s appeal for investors. The expansion of the Fed’s balance sheet to $8 trillion $11 trillion and the increase in the issuance of Treasuries from $1.28 trillion in 2018⁄2019 to $4.5 trillion in 2019⁄2020 fiscal year are bear factors for the greenback in the long-term prospect. The rates of the U.S. bond market have already increased amid the expansion of the Treasuries issuance, and the increase in borrowing costs will set the process of the economic recovery back.

The euro-area GDP growth is also held back. The ruling of the German constitutional court may limit the ECB bond purchases and increases the risks of the euro-area fragmentation. Also, the leaders of the euro-area governments can’t find a compromise on the fiscal stimulus. Therefore, the Chinese, the US, or the euro-area economies are unlikely to feature the V-shaped rebound. It is a positive factor for safe-havens. In my opinion, if the [USD/JPY][2] bears keep the control after the US jobs report (a poor reading will press down the US stocks and support the greenback), the downtrend (started via the[ breakout of the support at 106.75-106.8][5]) is likely to continue.

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Price chart of USDJPY in real time mode

![Yen will pass the test][8]

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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  1. my.liteforex.com/trading/chart?symbol=EURJPY&returnUrl=true
  2. my.liteforex.com/trading/chart?symbol=USDJPY&returnUrl=true
  3. cdn.liteforex.com/cache/uploads/blog_post/fundamental_analysis/topix-07-05-20.jpg?w=30&s=9a3b28b17013d167e000eb6334d52a98
  4. cdn.liteforex.com/cache/uploads/blog_post/fundamental_analysis/usdjpy-nikkei-07-05-20.jpg?w=30&s=0a77cc1a359da3c4899cf3c9a07ef10a
  5. www.liteforex.com/blog/analysts-opinions/yen-is-back-to-the-game/
  6. my.liteforex.com/?category=analysts-opinions&slug=yen-will-pass-the-test&openPopup=%2Fregistration%2Fpopup&utm_source=blog&utm_medium=article&utm_campaign=bonus
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  8. cdn.liteforex.com/cache/uploads/blog_post/fundamental_analysis/liteforex-blog-usdjpy-07-05-20.jpg?q=75&w=1000&s=d8e68766cdfa47cdfce1de13a1910416