The Future of Foreign Exchange Markets 第121回［田嶋智太郎］

Tomotaro Tajima Profile

Economist. President and CEO of Alfinauts. Born in Tokyo in 1964. After graduating from Keio University, he shifted his career following a stint at Mizuho Securities (now MUFG Securities). He analyzes and studies a wide range from finance and economics to strategic corporate management, and ultimately individual asset formation and fund management. He serves as a lecturer for lectures, seminars, and training hosted by private companies, financial institutions, newspapers, local governments, and various business organizations, with an annual number of lectures around 150. He has numerous features in print media such as Weekly Gendai “Rules of Net Trading,” Examina “Money Maestro Training Course,” and more, and has provided many comments. He has written columns on many websites about stocks, foreign exchange, and more, and is highly regarded as a stock and FX strategist. He also writes for the Home Economics section of the Free People’s Publishing Company’s “Basic Knowledge of Contemporary Terms.” After appearing regularly on TV (TV Asahi “Yajuuma Plus,” BS Asahi “Sunday Online”) and radio (MBS “Tsuruga’s Asaichi Radio”), he currently serves as a regular commentator for Nikkei CNBC “Market Wrap” and Daiwa Securities Information TV “Economy Marche.” His major DVDs include “Super Easy: Tomotaro Tajima’s FX Introduction” and “Super Easy: Tomotaro Tajima’s FX Practical Technical Analysis.” He has authored numerous books, including “Wealth Reassessment Manual” (Paru Publishing), “FX Chart ‘Profit’ Equation” (Alchemix), and “Why Can FX Make You Wealthy?” (Texts), among many others. His latest publication is “How to Profit by Riding the Rising U.S. Economy” (Free People’s Publishing).

The Dollar-Yen Remains Relatively Sturdy, Perhaps Due to 'Japan Selling'

As is known, there were moments on and after February 19 when the USD/JPY briefly surged into the 112 yen range. The market’s reaction at that time was that multiple U.S. economic indicators released were stronger than expected, and expectations for Chinese government stimulus measures to boost the economy were building momentum in the market, which was the main cause.

What cannot be missed is the assessment that “in addition, concerns about Japan entering a recession are drawing the yen weaker.” In the previous update for this column, I noted that “the yen may no longer be viewed as a safe currency,” and in fact, at the time of writing, there were voices in the market saying that “the rise in USD/JPY is the result of Japan selling.”

If it is said that Japan’s currency, the yen, will continue to be viewed as a safe haven, given that Japan has the second-highest number of infections after China, that is becoming harder to defend.

In the end, the rise of USD/JPY to the 112 range was temporary (as of writing), and later it fell back to around 110, mainly due to a decline in the dollar. On February 24, when the Tokyo market was closed for a substitute Emperor’s Birthday holiday, the U.S. stock market fell with the Dow Jones Industrial Average down over 1,000 points, accelerating the dollar selling flow. On the 25th, there was another drop of 879 points, making the two-day decline the largest on record.

This was largely driven by news that the number of infections from the new coronavirus was surging in Italy and South Korea, shocking the market at the start of the week. News of the spread of infection in Europe, particularly Italy, had a strong impact, reminding markets of the possibility that this could develop into a pandemic, and thus market risk sentiment grew sharply.

Previously, the virus’s impact was viewed as a distant issue “overseas (China and Japan),” but it began to be seen in the United States as “it is no longer a matter on the other side.” Shortly after, the U.S. Centers for Disease Control and Prevention (CDC) warned that “we are approaching a global pandemic,” which further heightened overall market caution.

The initial trigger for the U.S. stock decline was the rapid increase in Italian infections, which led to sharp declines in European stock indices. Nonetheless, in the foreign exchange market, the dollar was sold against the euro. This was unequivocally dollar selling, and the decline in USD/JPY was not necessarily a “risk-off yen buying” scenario.

Incidentally, there is a factual background that Italy has long seen Chinese visitors seeking “Made in Italy” (mainly clothing). Against this backdrop, Italy and China signed a memorandum of cooperation on the Belt and Road initiative last year, and the two countries were developing a closer relationship.

However, Austria, Croatia, Switzerland, and other neighboring countries with travel histories to Italy have also reported infections, so the reality is that it is no longer safe to assume this is only a special Italy issue.