The US dollar strengthened rapidly versus the Japanese Yen in today's trading (20 / February), to set a record high since April 2019 at 112.19. Reuters reports a massive investor flight from the Yen market, contrary to the general assumption that the Japanese Yen plays a haven amid the global crisis.
Japan's economic conditions are also expected to worsen along with the widespread impact of the Corona COVID-19 virus outbreak. In fact, the Japanese central bank has poured too much monetary stimulus and only has a few policy choices to stimulate the economy back.
"You see a potential concern about the situation of this virus (pushing up) gold and you don't see the same movement in the Yen," said Shafali Sachdev of BNP Paribas Wealth Management, "(geographical) proximity to China and dependence on China in the current situation does not making the Yen a risk-off choice asset. "
According to Sachdev, Japan's exposure to the virus outbreak and recent weak economic data has exacerbated market concerns. As is known, Japan now has the most cases of COVID-19 infection in the world after China, due to the stranded luxury cruise ship Diamond Princess that carried hundreds of victims at the port of Yokohama.
Inflation Causes the Weakening Japanese Currency
"If no one uses the Yen as a lender anymore, then there is probably no reason for the Yen to trade as a haven. Price movements in the past year or so have raised that question," said Brent Donnelly, a forex spot trader at HSBC, while pointing out absent Yen's response to tensions on the Korean peninsula and the US-Iran conflict some time ago.
The Japan Bureau of Statistics publishes Consumer Price Index data or inflation at the consumer level for January 2020. The data grows 0.7 percent annually (YoY), according to economists' forecasts. Compared to the previous period's 0.8 percent achievement, this inflation rate certainly showed a slowdown.
On the other hand, core inflation that did not include the fresh food category was recorded at the level of 0.8 percent, up from the level of 0.7 percent in the previous period. The increase was triggered by rising fuel prices after OPEC resumed production output at the beginning of last month.
Furthermore, Core Inflation, which does not count the categories of fresh food and energy, has decreased from 0.9 percent to 0.8 percent. In general, the release of Sakura's Inflation rate this morning is in line with market expectations and reflects a weak inflation trend.
Japanese Currency Against US Dollars
Japan's inflation data which is still far from the Central Bank's (BoJ) target in early 2020 increasingly put pressure on policymakers, including the BoJ Governor, Haruhiko Kuroda. In his latest statement on Friday morning, Kuroda highlighted the weak inflation made worse by the outbreak of the Coronavirus, threatening the Japanese economy which is currently on the brink of recession.
"The Japanese economy is currently struggling with uncertainty due to the Coronavirus outbreak and contracting economic growth. (However), the Central Bank of Japan is not interested in adding to the monetary stimulus which has been so massive," Kuroda said.
The majority of economics are skeptical in assessing the BoJ's attitude. The reason is, so far there have not been many changes that occurred in Japan's fundamental conditions despite various stimuli that have been launched.
At the time of writing, the Yen is trying to trim large losses against the US Dollar which has suffered in the past two days. Noted, the Yen weakened by 1.94 percent since Wednesday's trading session. The pair USD / JPY is now slightly corrected at the level of 111,999, not far from the highest level of the month touched in the previous session.
