As per the latest forecast from Japan’s NIKKEI, the Japanese economy is set to post the world GDP figures during Q2 2020 since World War II.

Key quotes

Japan’s economy is expected to contract by an annualized 21.7% during the April-June quarter, it’s worst showing since the end of World War II, as the coronavirus crisis sends business and consumer activity into an unprecedented stall, a Nikkei survey shows.

The forecast for real gross domestic product, an average of projections from 16 private-sector economists, shows Japan faring worse than during the global financial crisis of 2008-09, when GDP sank 17.8% in the worst quarter.

The largest contributor to the projected second-quarter decline is an anticipated 6.9% drop in consumer spending, which accounts for more than half of GDP. Consumer confidence slumped to its lowest level on record this month.

The outlook for overseas demand is similarly dim. The U.S. Congressional Budget Office sees real GDP shrinking 40% on an annualized basis this quarter. Though Chinese economic activity has resumed after a virtual halt during the first months of the outbreak, the country lacks the strength to drive the global economy as it did after the 2008 crisis.

The International Monetary Fund projects a global recovery in the latter half of 2020, and the economists surveyed by Nikkei on average forecast a 9.9% expansion for Japan in the July-September quarter. But some observers say economic activity will pick up only gradually, pointing to risks like another wave of infections.

FX implications

The news exerts additional downside pressure on the Japanese yen (JPY) and adds strength to the US dollar’s safe-haven demand. As a result, the USD/JPY extends the previous day’s pullback moves above 107.00, currently near 107.20.

In it’s yet another move to combat the coronavirus (COVID-19), the US Federal Reserve (Fed) announced to expand access to its Paycheck Protection Program Liquidity Facility (PPPLF) to additional lenders, and expanded the collateral that can be pledged. 

Key quotes

The changes will facilitate lending to small businesses via the Small Business Administration’s (SBA) Paycheck Protection Program (PPP).

As a result of the changes, all PPP lenders approved by the SBA, including non-depository institution lenders, are now eligible to participate in the PPPLF. SBA-qualified PPP lenders include banks, credit unions, Community Development Financial Institutions, members of the Farm Credit System, small business lending companies licensed by the SBA, and some financial technology firms. 

Additionally, eligible borrowers will be able to pledge whole PPP loans that they have purchased as collateral to the PPPLF.

The SBA’s PPP guarantees loans from qualified lenders to small businesses so that those businesses can keep workers employed. 

FX implications

The news failed to put a bid on the risk despite being positive to the markets. The reason could be traced from US President Trump’s latest salvo against China that renews trade war concerns. As a result, the US equity futures remain on the back foot during the Asian session at the start of the month.

  • USD/JPY stretches previous recoveries from the multi-day low.
  • US President Trump holds China responsible for the virus outbreak, threatens to use tariffs to respond.
  • Japanese PM Abe will decide about the national emergency on Monday.
  • Japan’s Tokyo CPI, virus/trade headlines will be the key to watch.

While a 10-pip range between 107.13 and 107.23 restricts USD/JPY moves during the last hour, the yen pair does extend the pullback from multi-day low while taking the bids near 107.18 ahead of Friday’s Tokyo open. Even if the US data have been disappointing off-late, the market’s rush to risk-safety keeps the US dollar strong versus major counterparts. The reason for the Japanese yen’s weakness, despite its safe-haven appeal, could be traced to the virus outbreak in the Asian nation.

Risk aversion favors the greenback…

US President Donald Trump recently upped his fight against China’s perceived inability to warn global economies of the virus outbreak on time. The Republican leader initially probed the World Health Organization (WHO) to have favored the dragon nation and stopped the US contribution to the global institute.

In his latest comments, US President Trump warns the use of tariffs on China to respond to the nation’s performance. The businessman-turned-politician earlier said that the US trade deal with China has been “upset very badly” by the coronavirus (COVID-19).

Other than the renewed trade war fears, which were once the market catalyst before COVID-19 outbreak, the fears of global recession due to the pandemic, as well as a lack of the exact cure, also weigh on the market’s trade sentiment. In a case of Japan, the PM Shinzo Abe is expected to, as per NIKKEI, unveil his further plans for the national emergency that was to end early this month.

It should also be noted that the ECB’s lack of bold moves and downbeat US data failed to put a floor under the pair earlier.

Amid all these plays, Wall Street closed April month on a negative tone while US 10-year Treasury yields fail to portray any major moves around 0.65%.

Looking forward, USD/JPY is likely to keep struggling to justify the risk-safe allure of the USD and JPY. However, the US dollar is better suited for the pullback move amid the early-month buying as well as after the late-April declines. On the economic calendar, Japan’s Tokyo Consumer Price Index (CPI) as well as Tokyo CPI ex Fresh Food for April, expected 0.4% and 0.1% versus 0.4% prior for each, could direct immediate pair moves ahead of Jibun Bank Manufacturing PMI, prior 43.7.

Technical analysis

Despite the latest pullback, the pair is yet to cross the three-week-old falling resistance line, at 107.45 now, which in turn keeps March 10 top of 105.92 on the sellers’ radar.


  • US stocks fell in the last day of the month with the S&P 500 losing 0.9% to 2,912.
  • Dow Jones Industrial Average dropped  1.2%, to 24,346,
  • The Nasdaq Composite was also lower by 0.3% to 8,890.

US benchmarks were modestly lower on Thursday, but their month-end business woes were not woeful enough to dent their double-digit percentage gains for this month. Markets remain optimistic with the curve peaking and prospects of businesses attempting to, slowly, get back to work. However, mixed session and corporate earnings resulted in a top for the benchmarks on the last day of trade

Consequently, the S&P 500 lost 0.9% to 2,912 while the Dow Jones Industrial Average dropped 288 points, or 1.2%, to 24,346, based on preliminary numbers. The Nasdaq Composite was also lower by 0.3% to 8,890. For the month, the S&P added 10.9%, the Dow put on 11.1%, and the Nasdaq gained 15.5%.

US data was shocking, again

As for data, we had more bad news and this time from out of the Chicago PMIs which dropped like a stone to 35.4 in April, down from 47.8pts the previous month. As for jobs, we got another 3.8 million Americans applying for their unemployment benefits in the week to April 25. However, that’s a far cry from the abysmal  6.9 million five weeks ago. In just six weeks, over 30 million people have become jobless in the US. More bad data came in the Personal Consumption Expenditures (PCE) index falling 0.3% MoM which now leaves the headline rate at 1.3% YoY, down from 1.8%.

Dow levels


  • AUD/USD respects the seller’s entry near the multi-day high.
  • Market sentiment dwindled amid downbeat macros, ECB’s lack of bold moves and US President Trump’s attack on China.
  • Aussie PMIs can offer immediate direction, virus updates remain as the key driver.

AUD/USD extends the latest U-turn from 0.6530 to currently around 0.6510, defying the earlier pullback from 0.6490, at the start of Friday’s Asian session. While downbeat macroeconomics can be considered as a reason for the Aussie pair’s declines from the multi-day top, recently weak trading sentiment is also a catalyst for the risk barometer’s declines.

China’s Manufacturing PMIs earlier questioned the recent rally…

Not only soft prints of China’s April month official Manufacturing PMI, down to 50.8 from 51.0 expected, but Caixin Manufacturing PMI’s drop into the contraction suggesting region, to 49.4 from 50.1 prior, also were the first to check the Aussie bulls during Thursday’s Asian session.

The moves were then followed by downbeat European GDP and US Jobless Claims, Chicago Fed Manufacturing figures that spread worries of broad weakness in macroeconomics due to the coronavirus (COVID-19).

ECB’s soft landing also hurt the sentiment and so does Trump’s attack on China…

Other than the downbeat data-points, the European Central Bank’s (ECB) lack of bold moves as well as US President’s attack on China also weighs on the pair.

The ECB did soften rates for longer-term loans for banks and took measures to promote landing for special purpose loans. However, the vague performance of the ECB falls short of the economic threat and required actions as signaled by the regional central bank earlier.

US President Donald Trump continues to hold China responsible for the virus outbreak. His latest comments have direct links to the US-China trade deal that was the market’s main concern before the deadly virus erupted a few months back.

Moving on, Australia’s AiG Performance of Manufacturing Index and Commonwealth Bank Manufacturing PMI, with respective prior of 53.7 and 45.6, are likely immediate catalysts for the Aussie pair. Though, trade and virus updates are likely to have a major impact on the risk barometer’s performance.

Technical analysis

The pair’s failure to cross 100-day SMA, at 0.6566 now, seems to drag it back to mid-April top surrounding 0.6445/40. Though, bullish MACD keeps favoring the quote’s run-up towards 0.6685/90 area comprising 200-day SMA and March month high.