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Forecast for yen's price for 22 December 2020

2020-12-22

2020-12-22

Yen will count up to 100. Forecast as of 22.12.2020Dmitri Demidenko

The uncertainty connected with the trade wars and the pandemic is gradually leaving the market, and safe-haven assets are growing weaker. How will the [USDJPY][1] feel in 2021? Let’s find it out and make a trading plan.

Quarterly fundamental forecast for yen

Will the [USDJPY][1] bears reach the level of the century of 100 JPY to 1 USD? More and more large American and Japanese banks and investment companies think so. The question is, will the pair drop lower, or pull back from the 2016 levels instead amid the BoJ’s discontent? The yen risks closing in the green zone for the sixth consecutive year. However, this time, the reason isn’t its strength but the opponent’s weakness.

JP Morgan, Goldman Sachs, BNP Paribas, Mizuho Bank, and MUFG forecast that the [USDJPY][1] quotes will fall to 100 or 98 amid the USD’s weakness. Double deficit, U.S. assets’ lower investment appeal expressed in lower real bond yield and a huge money base pull the USD index down. The U.S. Q2 negative current account reached a record level since 2008, while Japan’s surplus is only growing.

The Fed spares no money to save the economy and plans to continue its emergency bond-buying program of $120 billion a month until the unemployment and inflation develop to an improved condition. The Central Bank predicts that the federal funds rate will be at the current level until 2024 at least. And that’s not a limit. If there’s a smell of double recession, the Fed is ready for more. The Bank of Japan’s potential is limited, though. It has purchased a major part of local bonds and is often compared with the whale in the Japanese pond/debt market. Although the evolution of consumer prices has been the worst in the past ten years, Haruhiko Kuroda didn’t do anything at the BoJ’s latest meeting, only saying that the Central Bank could revise the monetary policy.

The BoJ’s passivity and the Fed’s aggressive extension of the money base narrow U.S.-Japan yield spreads and foster the development of a downtrend in the [USDJPY][1].

[USDJPY][1] and U.S.-Japan yield differential

Source: Bloomberg.

Some may think that the U.S. economy will be growing faster than Japan’s because of the large monetary stimulus. Tokyo spares no fiscal support either. Cabinet of Japan approved the record big budget of $1 trillion for the fiscal year 2021, which can be easily extended through additional budgets as the 2020 experience has shown.

Japan’s budget values

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Source: Bloomberg.

If both the USA and Japan demonstrate booming economic growth next year, high-risk assets will benefit from that situation while safe-haven assets will still be kept down. I think the U.S. dollar and the yen will be the main Forex outsiders in 2021. The [USDJPY][1] is very likely to reach the level of 100, but I would suggest following [November’s][2] strategy of buying [EURJPY][3], [GBPJPY][4], and [AUDJPY][5] with targets at 126.4 and 128.5, 142.5 and 144.7, 79.5 and 82.4. The first of them has already worked out.

Price chart of USDJPY in real time mode

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=USDJPY&returnUrl=true
  2. www.liteforex.com/blog/analysts-opinions/yen-loses-the-firm-ground-forecast-as-of-24112020/
  3. my.liteforex.com/trading/chart?symbol=EURJPY&returnUrl=true
  4. my.liteforex.com/trading/chart?symbol=GBPJPY&returnUrl=true
  5. my.liteforex.com/trading/chart?symbol=AUDJPY&returnUrl=true