Japanese Yen price forecast 2 March 2021

2021-03-02

Central banks reached an impasse. Forecast as of 02.03.2021Dmitri Demidenko

The rapid recovery of the US economy allows the Fed to ease up a bit. Alas, other countries’ economies are not recovering so quickly, which forces their central banks to resist the rise in bond yields. How does this affect [USDJPY][1] and [EURJPY][2]? Let us discuss the Forex outlook and make up a trading plan.

Monthly Japanese Yen fundamental forecast

Central banks are usually happy to follow the Fed’s lead. This was the case in 2015-2017 when the US central bank raised the federal funds rate, and other central banks were pleased with the weakening of national currencies against the US dollar. This was the case in March 2020, when the Fed launched an unprecedented monetary stimulus program, and other central banks followed in its footsteps. In early 2021, it seemed to many that the path taken by Jerome Powell and his team was the path to nowhere.

Is the Fed’s strategy correct? Should other central banks ignore the growth in bond yields, explaining it with hopes for a fiscal stimulus and a robust economic recovery? Most regulators do not agree. The Reserve Bank of New Zealand officials, looking at the fastest monthly growth in sovereign debt rates since 1994, said they were closely watching for signs of financial market dysfunction, and they had an opportunity to scale up the NZ$100 billion bond-buying program. The Reserve Bank of Australia doesn’t waste words and is increasing activity in the domestic debt market. On February 26, its asset portfolio grew by AU$3 billion, on March 1 - by AU$4 billion. These are the most serious interventions since the start of QE in March 2020.

Others are not lagging behind. Representatives of the Governing Council believe that the ECB can and should increase the scale of bond purchases to clamp down on yield growth. At the same time, the Bloomberg insider claims that the Bank of Japan will abandon the idea of expanding the target yield spread of 10-year securities from +/-0.2% to + /-0.3% to show that it will not be led by the markets. BoJ’s desire to control debt market rates has made and continues to make the yen dependent on events outside of Japan. Bond yield spreads point the way for [USDJPY][1] and [EURJPY][2] prices.

Dynamics of [USDJPY][1] and US-Japanese bond yield spread

Source: Investing.

Dynamics of [EURJPY][2] and German-Japanese bond yield spread

Source: Investing.

I considered the yen to be the main outsider among the G10 currencies, and I continue to do so. All because of the implementation of the idea of the rapid growth of global GDP and massive sales of safe-haven assets. At the current stage of development, the Fed and other central banks’ different views speak in favor of buying [USDJPY][1]. The Federal Reserve can afford to passively contemplate what is happening against the backdrop of US GDP’s potential growth to 7.6% in 2021. Other regulators, including the BoJ, are forced to restrain growth rates due to the slower recovery of national economies.

[USDJPY][1] and [EURJPY][2] trading plan for a month

The targets for [USDJPY][1] and [EURJPY][2] in the 107-108 and 129-130 areas, set back [in January][3], are practically met or fulfilled. If Treasury yields continue to rise, the US dollar will strengthen to ¥109-110. As for the euro, the [EURJPY][2] pair is likely to start consolidation in the 127.5-130 range if there are no signs that the eurozone economy is recovering. And yet, I believe that there will be a rapid growth of global GDP in 2021, so the recommendation remains the same - buy on a price decline.

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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