USDJPY forecast for 07.07.2020

July 7, 2020

Yen got back its favorite toyDmitri Demidenko

Japanese Yen forecast for today

The Japanese yen is a safe haven asset again

How to make someone happy? You can take something valuable, which was taken for granted earlier, and give it back later. Something like this happened to the yen. The JPY used to be the major Forex safe haven for a long time, and it was taken for granted. However, after the Fed lowered the interest rates to a level around zero, the US dollar became a more demanded safe-haven. This summer, the yen has again turned into a safe haven. As a result, the [USD/JPY][1] is steadily trading in the consolidation range of 106-110. Not only exporters and importers benefit from the yen stable rates, but also pension funds that do not need to worry about hedging against currency risks associated with investing in foreign assets.

Over the past few years, pension funds, including the GPIF, have wondered how to preserve and increase the funds they manage. They had to invest in foreign assets amid Japan’s aging population and low bond rates. Now, the outlook for the Japanese economy is more positive, and the BoJ has weakened its buying support, so the spread between 30-year and 10-year bond yields widens. The 30-yer yields are rising, which supports demand growth. The most recent auction drew a bid-to-cover ratio up by 3.92 times, the highest since July 2019.

Dynamics of Japan’s yield curve

![LiteForex: USDJPY forecast for 07.07.2020][2]

Source: Bloomberg.

The trends in the bond markets of the USA and Japan are important to anti cipate the dollar-yen future prices . In the USA, despite a difficult epidemiological situation, there is still hope for a quick GDP rebound, which draws up 10-year Treasury yields. Besides, the BoJ holds Japan’s bond yields at a fixed level, which increases the U.S.-Japan bond yield spread and pushes the [USD/JPY][1] up to the top of the consolidation range of 106-110, which I defined in April. On the other hand, the gloomy forecasts that the reopening of the US economy will result in the surge of the coronavirus cases and another lockdown, press the 10-year Treasury yields down, giving an advantage to the [USD/JPY][1] bears. As a result, the yen is growing when the U.S. GDP outlook becomes more negative, that is it behaves as a safe haven.

Dynamics of USD/JPY and U.S.-Japan 10-year yield spread

![LiteForex: USDJPY forecast for 07.07.2020][3]

Source: Bloomberg

As already wrote, exporters, importers, and pension funds benefit from the return of the yen’s safe-haven status. The [UDS/JPY][1] traders, however, are not that excited. The correlation of the currency pair and the US stock indexes has become much weaker. Therefore, I recommend trading the idea of the change in the global risk appetite using the [EUR/JPY][4] and the [AUD/JPY][5]. The EURJPY breaks out the resistances at 122, and the AUDJPY is up above 75.1-75.2, optimists can well buy the euro and the Australian dollar against the Japanese yen amid the expectations of a soon victory over COVID-19 and the global economic recovery that should follow.

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Price chart of USDJPY in real time mode

![Yen got back its favorite toy][8]

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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