Japanese Yen price forecast 18 January 2021

2021-01-18

Japanese yen: from favorites to outsiders. Forecast as of 18.01.2021Dmitri Demidenko

Over the past three years, the yen has consistently been on the list of favorites among the G10 currencies. Trade wars and the pandemic allowed it to close the year with a gain, but this may change in 2021. Let us discuss the Forex outlook and make up [USDJPY][1] and [EURJPY][2] trading plan

Fundamental Japanese Yen forecast for six months

The Japanese yen has a great start in 2021, but it risks ending it not very well. It would seem that the growth in demand for safe-haven assets looks like an anomaly against the backdrop of the [S&P 500][3] rally. However, the Japanese currency rate against most major world currencies is growing steadily, following the US dollar, inspired by the rise in Treasury yields. [EURJPY][2] prices plummeted to 1.5-month lows due to extended lockdown in European countries, slow spread of vaccines in Europe, and risks of the ECB’s dovish stance at the January 21 meeting. Is the pair going to break out the uptrend?

Capital flows are at the heart of Forex rate formation. At the same time, huge bags of cheap money from BoJ determine the status of the yen as a funding currency and make it possible to say with confidence that much depends on Japanese investors’ preferences. When in the second half of 2020 they relied on an increase in the attractiveness of European assets compared to American ones, not only [EURJPY][2], but also [EURUSD][4] prices were growing. In early 2021, the rise in Treasury yields revived the carry trades with the yen’s participation as the funding currency and the US dollar as the risky asset. As a result, the main currency pair went into a correction, and the [USDJPY][1] prices stabilized.

Alas, but the potential for a 10 and 30-year US Treasury bond rate rally looks limited to the areas of 1.25-1.3% and 1.92-2%. All due to the spread of COVID-19, the slow introduction of vaccines, and temporary difficulties with the passage of the $1.9 trillion fiscal stimulus project through Congress due to Donald Trump’s impeachment. The Fed is unlikely to start talking about curtailing QE earlier than May-June, which will soon pressure the US dollar and other safe-haven currencies.

Dynamics of US debt market rates

Source: Bloomberg.

Indeed, prolonged lockdowns, slow vaccination process, and heightened risks of a double recession in the eurozone are seriously undermining the euro. However, these reasons are unlikely to give the ECB an excuse to expand the emergency asset purchase program’s scope. According to most Bloomberg experts, this program will be used in full.

Predictions on the scale of the European emergency asset purchase

program

Source: Bloomberg.

[USDJPY][1] and [EURJPY][2] trading plan for six-twelve months

When global GDP starts booming, which is expected in the second quarter of the year, safe-haven currencies will lose their appeal. If the US dollar has such an advantage as QE’s potential collapse at the turn of 2021-2022, the yen does not have such an opportunity. Therefore, I expect the [USDJPY][1] prices’ grow by the end of this year to the 107-108 level.

As for [EURJPY][2], the current correction provides an opportunity to buy the pair at a lower price. The recovery of the eurozone economy after the lockdown may inspire the ECB hawks to feats. Talks of tightening monetary policy will sooner or later reach investors, which, along with improved global risk appetite and favorable for export- oriented currencies’ increased international trade, will help raise [EURJPY][2] prices to 129-130 level during the first half of 2021.

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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