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USD/JPY forecast for 27.04.2020

April 27, 2020

April 27, 2020

Yen is back to the gameDmitri Demidenko

The USD/JPY bears do not want to play a secondary role

After a 5% surge of the [USD/JPY][1] over the two weeks in March amid the crash of the US stock indexes, some investors start talking that the yen has lost its status of the major safe-haven. In theory, the turn of the US stock market down into the bear territory should have resulted in the massive capital repatriation to Japan, but this didn’t occur. The Japanese investors preferred the greenback. However, as the S&P 500 was rising, it was not beneficial to hold the US dollar in the investment portfolios. As a result, the yen has covered a great part of the losses in April, and the yen, among the G10 currencies, has been only major currency up against the dollar this year.

Changes in the values of the G10 currencies

![LiteForex: USD/JPY forecast for 27.04.2020][2]

Source: Bloomberg

HSBC estimates that Japan’s total overseas investment has grown by 75% since 2014 and currently stands at about $ 1.4 trillion. However, the merger and acquisition deals in Japan has significantly declined amid the coronavirus outbreak. As a result, the Asian will receive dividends in the next few months, and the current account surplus will be growing. This creates a fundamental base for the USD/JPY downtrend. According to the HSBC, the yen is still an appealing and strong currency.

The [USD/JPY][1] sellers are not concerned about the drop in Japan’s services PMI to a new record low of 22.8 in April. Japan’s purchasing managers index for manufacturing fell to 43.7 in April, indicating the strongest contraction in the factory sector since the financial crisis of 2008-2009. The PMI crash signals that the GDP could shrink more than 20% in the second quarter.

Dynamics of Japan’s PMI

![LiteForex: USD/JPY forecast for 27.04.2020][3]

Source: Bloomberg

Japan’s government and the BoJ have spent every effort to fight with the pandemic and recession. At its last meeting on April 27, the BoJ decided to buy an unlimited amount of government bonds and to expand the existing volume for the acquisition of corporate and commercial paper bonds to ¥20 trillion ($186 billion).

In theory, the further monetary easing is a bear factor for the local currency, however, the yen, on the contrary, strengthened after the publication of the BoJ statement. First, in the time of crisis investors tend to preserve the capital, rather than increase it. So, the willingness of the BoJ to hold the interest rates low is good news for the [USD/JPY][1] bears. Second, the monetary policies pursued by the Fed, the ECB, and other leading central banks are also ultra-easy, which weakens the world’s major currencies. Third, the BoJ’s announcement of the unlimited purchase of government bonds is just a formality. In fact, it didn’t reach its target for the increase in the monetary base at ¥80 trillion earlier.

In my opinion, amid the strong uncertainty and high volatility, and the monetary easing held by most global central banks, the yen will be supported by the inflow of investment capital in the form of dividends and reduction of outflows associated with a decrease in Japanese investors’ activity in mergers and acquisitions. Therefore, if the support at 106.75-106.8, the [USD/JPY][1] will be more likely to continue falling.

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Price chart of USDJPY in real time mode

![Yen is back to the game][6]

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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