The dollar / yen was lower on Tuesday after posting a strong gain of nearly 2% the previous session. Investors tossed the Japanese yen and bought riskier currencies and the US dollar on Monday as market confidence in the global economy and global trade increased with progress on a COVID-19 vaccine announced by Pfizer.
As of 08:00 GMT, USD / JPY is trading 105.064, down 0.325 or -0.31%.
The USD / JPY soared on Monday after Pfizer Inc and its German partner BioNTech SE announced that their experimental COVID-19 vaccine was over 90% effective in initial trial results, which experts say could be a turning point towards stopping the pandemic.
Traders also said that the announcement over the weekend that Democratic challenger Joe Biden had won enough electoral votes to be named president-elect also encouraged Japanese yen buyers to unwind a massive amount of long positions. A Biden presidency is expected to strengthen international trade through stable policies.
Rising Treasury Yields Boost US Dollar
The dollar / yen rally on Monday essentially resulted in a surge in yields on US Treasuries which made the greenback a highly desirable currency.
The yield on the 10-year Treasury bill jumped 13 basis points to 0.95%. The benchmark rate peaked at 0.975%, its highest level since March 20. The yield on the 30-year Treasury bill climbed 15 basis points to 1.742%.
Japanese Prime Minister Suga orders Cabinet to compile new stimulus package
Japanese Prime Minister Yoshihide Suga instructed his cabinet on Tuesday to compile a stimulus package to revitalize an economy hit by the coronavirus pandemic, the country’s economy minister said. The move could weaken the Japanese yen if passed.
The package aims to cushion the blow of COVID-19, help structural changes in the economy and boost productivity through digitization, Economy Minister Yasutoshi Nishimura said at a press conference after a regular cabinet meeting.
“We will want to consider government spending that will attract private investment,” Nishimura said, adding that the government will compile the package as soon as possible.
The direction of USD / JPY will be determined by traders’ demand for riskier assets and the movement of Treasury yields. If global equity markets continue to rally to the vaccine announcement, bond markets will sell off as yields rise, causing all asset classes to revalue, making the low-yielding Japanese yen an investment. less attractive.
Traders should also watch President Trump’s challenges with the election outcome. While investors were reassured by Saturday’s news that Joe Biden had garnered enough votes to win the U.S. presidential election, U.S. stocks fell late in the session after U.S. Senate Majority Leader Mitch McConnell said Monday that President Trump was well within his rights to investigate “irregularities” in last week’s election.
For an overview of all of today’s economic events, check out our economic calendar.