The Japanese Yen may extend Fall as AUD/JPY, EUR/JPY and GBP/USD reach a multi-year high, setting a new all-time high against the US Dollar. This is likely due to the weakness of the U.S. Dollar.
The Yen against the USD is likely to weaken in the second half of 2020 after a strong performance in the first quarter. This is especially because the Federal Reserve is expected to take further steps to support a weak economy. If this is the case, then a weaker yen will be able to offset the fall in AUD/JPY, EUR/JPY and GBP/USD. This would help to keep the US Dollar at its current rate.
Another potential reason for the weakening of the Japanese yen is the worsening economic conditions in Europe. It is likely that the Euro will fail to recover from its recent financial problems. The U.K. is also expected to face a severe recession in 2020. The European Central Bank (ECB) is unlikely to do much in order to stimulate the economy, unless it is forced to do so by the European Commission. Meanwhile, there will be an increase in unemployment and inflation, and there may even be a rise in default rates in many countries.
In contrast, Japan has successfully managed to avoid a prolonged period of economic stagnation and decline in the Eurozone. It will therefore be in the best position to offset any fall in the Yen against the USD, particularly if the EUR/JPY is weak.
There are many other factors that may affect the Euro as well, and it is important to remember that the European Central Bank has been successful in keeping economic conditions stable. It has done this by taking action to ease credit constraints and to implement negative interest rates.
At the same time, it has remained wary of the possible implications that could result from a further rise in the Euro. For example, it may be tempted to move away from its bond purchases. If it does so, then the EUR/JPY may drop considerably as investors shift their money from the USD to the stronger currency.
On the other hand, a fall in the Euro would also force the Japanese to boost the level of its economy. As a result, the Yen will likely start to rise in value in response, pushing the AUD/JPY, EUR/JPY and GBP/USD even higher and thus strengthening the dollar against the euro.
If this scenario should unfold, then a stronger yen will be able to offset the fall in AUD/JPY, EUR/JPY and GBP/USD. and help to keep the USD at its current level.
On the other hand, if Japan is unable to maintain a strong dollar position, the Yen will probably weaken and the AUD/JPY will begin to fall. In that case, the weaker currency will be more attractive for Japanese exporters, which will push up the AUD/JPY again, pushing the EUR/JPY even lower.
One thing that investors need to consider is that a weaker currency can also be a powerful motivator for foreign investors to look to buy the stronger currency in order to take advantage of the situation. In that case, the weaker currency will be more attractive and the AUD/JPY will rise again. thereby helping to push down the stronger currency.
This depreciation effect may become more pronounced if the weaker currency is stronger than the stronger one. In that case, the weakening currency may push down the AUD/JPY even further, forcing the AUD/JPY back towards the USD.