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Japanese Yen Outlook: JPY May Rise as S&P 500 Falls on Stimulus Woes

Japanese Yen Fundamental Forecast: Bullish

  • The anti-risk Japanese Yen fell as the S&P 500 rose last week
  • JPY may rise on diminishing US fiscal stimulus expectations
  • No-deal Brexit woes still persist, what else to watch into Q4?

The anti-risk Japanese Yen spent most of this past week trading lower against its major counterparts as the third quarter wrapped up. This is a global market sentiment rebounded and US benchmark stock indices pushed cautiously higher. Trump’s contraction of the coronavirus temporarily induced volatility. Could weakness in JPY persist, revitalizing what has been the dominant downtrend since the middle of March?

A notable fundamental development from this past week was the passage of the US$2.2 trillion fiscal package in the House of Representatives. However, this was split on party lines, lowering the odds of it receiving the Senate’s blessing. Treasury withdrawals for unemployment insurance have been declining since late July as the impact of the first package faded and it was replaced with a watered-down executive order.

Markets are forward-looking, and diminishing prospects of additional stimulus from the world’s largest economy risks sending the S&P 500 lower to the benefit of the Japanese Yen. With the presidential election fast approaching, all eyes turn to this week’s debate between Vice President Mike Pence and Senator Kamala Harris on October 7th. Last week’s presidential debate saw a ‘risk-off’ tilt ensue afterwards.

For updates on developments in the Japanese Yen and risk trends, make sure to follow me on Twitter @ddubrovskyFX

Brexit negotiations are also going to resume this week as the EU and UK inch closer towards the end of the ongoing transition period. Over the weekend, UK Prime Minister Boris Johnson will be meeting European Commission President Ursula von der Leyen for talks. Rising odds of a no-deal withdrawal is not just a risk traders could face this week, but well into the end of the fourth quarter.

Focusing on the US, September’s ISM services data print will cross the wires for deeper insight into the health of the largest component of the economy. Then, all eyes turn to FOMC meeting minutes which may induce risk aversion. Commentary that echoes the cautious tone of September’s policy announcement could boost the Yen. For more insight into JPY’s road ahead, check out the Q4 outlook in the guide below!

— Written by Daniel Dubrovsky, Currency Analyst for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter