Japanese yen falls as Abe unveils $1 trillion Coronavirus stimulus

The Japanese yen declined by 50 basis points
as the market reacted to a new stimulus unveiled by Shinzo Abe. The market also
reacted to some positive Coronavirus-related news from Europe, where some
countries have started seeing fewer infections. This news was met with optimism
as global stocks rose while the VIX index declined by more than 5%.

Japanese
yen fell as global risks eased

Shinzo Abe unveils $1 trillion stimulus

Japan became the latest
country to unveil a major stimulus to offer a sizable stimulus package. In
a statement, Shinzo Abe said that the government would take all steps necessary
to stabilize the economy as he unveiled a $1 trillion stimulus package. This will
be the biggest stimulus the third-biggest economy has ever unveiled.

Little is known about the stimulus and how
it will be implemented. However, based on its size, analysts interviewed by
Reuters said they expect the government to give the funds to businesses in a bid
to stem layoffs. According
to Nikkei, some money could also be sent directly to households to cushion
them from the risks caused by the disease.

Japan Coronavirus cases rise

The new stimulus package from Japan comes
at a time when Coronavirus cases in the country are rising. According to World
of Meters, Japan has confirmed less than 4,000 cases and 73 deaths. Analysts
expect that these numbers will continue rising. They also fear that the death
cases will increase because Japan has a very big percentage of the elderly.

Meanwhile, Japan avoided taking the extreme
measure of declaring a national lockdown as was widely expected. Instead, he said
that he would declare
a state of emergency in seven regions that have the highest risks. In the
statement, he
said; “Even though we will declare a state of emergency, we will not lock
cities down and I do not think it is necessary.”

The decision to declare a state of emergency
means that the local governments of the seven regions will be at will to order
their residence to stay at home. They will also be free to close down schools
and hospitals.

Japan economy worsened

Japan’s economy was already struggling before
the current crisis. Government data showed that the country’s economy
slid by 6.4% in the fourth quarter. This brought the annualized slowdown to
7.1% and was partly attributed to a new consumption tax. The Bank of Japan has also
struggled for more years to bring inflation rate to the target
2% even though unemployment rate has remained below 3%.

Just last week, a report by Markit showed
that manufacturing
activity in the country dropped to 44.4. This was the lowest level since
2009. Also, last week, data from the central banks showed that sentiment among
big and small companies was sliding. Machine orders are also struggling.

The BOJ has also acted to cushion the economy
in the ongoing crisis. Last month, the bank announced that it would double its quantitative
easing program to more than $112 billion. The bank also said that it would
buy $700 billion in Treasuries and mortgage-backed securities. Most importantly,
the bank said that it would expand the upper limit of its corporate bond
balance sheet and commercial paper.

USD/JPY
technical outlook

Japanese yen technical outlook

The USD/JPY pair has been rising after bottoming
at around 107.00 last week. On the hourly chart, the pair has recovered to the
50% Fibonacci Retracement level. It has also been making higher highs. The most
likely scenario is where the pair resumes moving upwards to test the resistance
shown in black. The alternative scenario is where a new bearish trend is formed.
This will happen if the pair is able to break past the support shown in pink.