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USD/JPY forecast for 11.08.2020

August 11, 2020

August 11, 2020

USD/JPY forecast: will the yen open a window to economyDmitri Demidenko

Fundamental Yen forecast for today

The gap between Japan and US bond yields will give a clue on USD/JPY

future price trend

Before the recession, it was beneficial to trade the [USD/JPY][1] on the U.S. economic news. The BoJ’s yield curve control policy, in fact, left the Japanese government bonds out of the game as the JGB yields remained the same. The US positive domestic data widened the yield gap, which strengthened the US dollar. A narrower spread between the yields on the Treasuries and the JGB encouraged the yen bulls to go ahead. The pandemic and global recession changed the game rules. Will investors play again?

The drop of the US stock indexes in March, followed by the Fed’s monetary expansion, sent the Treasury yields down by 130 basis points to the all-time lows. Analysts started discussing the introduction of the negative interest rates by the Fed. The yield on Japan’s bonds, amid the BoJ policy and limited foreign demand, is stable close to zero. So, it is different from global trends. Since the beginning of 2020, the negative-yielding debts have been 40% up, to $16 trillion.

Dynamics of US and Japan’s bond yields

![LiteForex: USD/JPY forecast for 11.08.2020][2]

Source: Bloomberg

More and more experts say Treasuries can’t be a window into the economy as before. The US Treasuries often ignore the US domestic data, they are obviously overbought. Furthermore, buyers are discouraged by the talks about the growing bond issue amid the expansion of the fiscal stimulus and the selloffs of Treasuries by China. The bond price is inversely proportional to its yield. Therefore, selling on the secondary market before auctions or diversifying FX reserves drives the price down, which increases the interest rates.

A stable yield-gap between Treasuries and JGB is a reason to expect the [USD/JPY][1] consolidation in the range of 104-108. The Bank of Japan is not interested in the yen’s strengthening, as it hopes to drive inflation to its 2% target. So, the yen is now more interesting to trade against other currencies rather than the US dollar. It is rather sensitive to the US-China conflict, which turns from a trade battle into a real ideological war.

According to Mitsui Bank, further deterioration in the US-China relations will weaken the greenback in the short run. However, it will hurt the entire global economy in the long-term. I believe the conflict escalation will allow selling the [AUD/JPY][3] with targets at 74.9 and 73.7 and selling the [NZD/JPY][4] with targets at 69.3 and 68.6. However, if the if opponents won’t go further than mutual closures of consulates or sanctions against individual officials, I will stick to my former scenario of the [EUR/JPY][1] longs opened at [the level of 122][5]. Furthermore, I added up to the purchases on the [breakout of the resistance at 124][6]. Unless Europe is shocked by the second wave of the pandemic, the trading ideas are relevant.

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Price chart of USDJPY in real time mode

![USD/JPY forecast: will the yen open a window to economy][9]

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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  1. my.liteforex.com/trading/chart?symbol=EURJPY
  2. cdn.liteforex.com/cache/uploads/blog_post/fundamental_analysis/bonds-usa-japan-11-08-20.jpg?w=30&s=b69ca1261d697bd1a920ff0739f36130
  3. my.liteforex.com/ru/trading/chart?symbol=AUDJPY&returnUrl=true
  4. my.liteforex.com/ru/trading/chart?symbol=NZDJPY&returnUrl=true
  5. www.liteforex.com/blog/analysts-opinions/yen-got-back-its-favorite-toy/
  6. www.liteforex.com/blog/analysts-opinions/forecast-for-eurjpy-yen-regained-its-authority/
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  9. cdn.liteforex.com/cache/uploads/blog_post/fundamental_analysis/liteforex-blog-usdjpy-11-08-20.jpg?q=75&w=1000&s=ca778cba6763ee46a1ac1ead62a77273