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  • AUD/JPY ekes out gains in Asia as the US stock futures trade in the green. 
  • Japan entered an economic recession in the first quarter.
  • Equities remain bid, keep Yen on the offer despite weak data, as Fed’s Powell reiterates readiness to do more.

The AUD/JPY pair is reporting marginal gains during Monday’s Asian trading hour amid an increasing disconnect between the equity market performance and the lived economic reality. 

Japan’s economy contracted at an annualized rate of 3.4% in the first quarter following a revised 7.3% contraction in the final three months of 2019, government data showed on Monday. 

Japan has officially entered a recession with the consecutive quarterly economic contractions. Even so, the futures on the S&P 500 are gaining altitude and keeping the Japanese yen, a safe haven, on the defensive. At press time, the US index futures are up 0.83% and the AUD/JPY is trading at 68.87, representing a more than 20-pip gain on the day. 

The disconnect between the economic reality and the stock markets could be associated with the comments by the latest Federal Reserve’s Chairman Powell that the central bank hasn’t run out of ammunition yet and could do more if required. Moreover, the Fed and other major central banks have injected unprecedented amounts of liquidity over the last past two months, helping equities stay bid despite mounting risks of a coronavirus-led global deflationary crash. 

Looking ahead, the liquidity-driven rally in the US stocks could come to a screeching halt due to renewed friction between the United States and China over the virus outbreak. The Trump administration stepped up its anti-China rhetoric over the weekend, with a top aide suggesting Beijing sent airline passengers to spread the infection worldwide.

Technical levels