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  • Bears on Japan’s economy note it fell into its biggest contraction in five years.
  • Committed bulls defending downside territories, positions, looking to an upside area of equilibrium.
  • Wall Sreet back on fire, out of correction territory. 

USD/JPY consolidated around 107.50 on Wall Street despite a hefty buyback of US stocks, seeing the DJIA shoot over 1000 points higher for the second time in its 124 year history. The Scenario in US yields continues to burden the cross and uncertainties surrounding the coronavirus outbreak is keeping bonds bid. At the time of writing, USD/JPY is trading at 107.48 having travelled between a low of 107.39 and 107.74 so far as buyers step in, accumulating cheaper dollars. 

  • Dow Jones Industrial Average, DJIA,  climbed 1,171 points, or 4.5%, to end around 27,090.
  • The S&P 500 added 4.2% and the NASDAQ added 3.9%.

Overnight, the US 2-year treasury yields fell from 0.70% to 0.61% – a fresh record low, while the 10-year yield ranging between 0.93% and 1.01%. Markets are pricing around a 100% chance of a 25bp cut at the next Federal Reserve interest rate decision 18 March, and a terminal rate of 0.37% (vs Fed’s mid-rate at 1.13% currently). However, considering the hefty 50 basis point cut and a potential flight back into Wall Street, the return of risk appetite and less pessimism would be a factor to prevent the Fed from needlessly cutting rates so aggressively so soon. 

 110.08 is the point of control (POC)

Meanwhile, there is a great deal of ground to be had to the upside on a correction, 110.08 is the point of control (POC) of the 19th Feb downtrend, an area of equilibrium and a 61.8% Fibonacci treatment target sits just above it at 110.17. It will boil down to Japanese pensions seeking to place risk outside of Japan in addition to growing pessimism surrounding the Japanese economy. The US dollar would also be expected to garner a safe haven bid again if economies, such as Japan, enter recessions this year.  

The sales-tax hike and destructive typhoon plunged Japan’s economy into its biggest contraction in five years in the final quarter of 2019 and there are prospects for a technical recession. The novel coronavirus outbreak is also threatening a return to growth. Gross Domestic Product for the world’s third-biggest economy shrank an annualized 6.3% from a quarter earlier, according to data released by the Cabinet Office. 

USD/JPY levels