Japanese Yen price forecast 8 March 2021

2021-03-08

Yen shows the white flag. Forecast as of 08.03.2021Dmitri Demidenko

The rapid growth of US Treasury bond yields has finally distributed the roles in Forex. The Japanese yen and the Swiss franc are the main outsiders in the market. How far can the [USDJPY][1] rally go? Let us discuss the Forex outlook and make up a trading plan.

Monthly Japanese yen fundamental forecast

In any market, as in life, there are winners and losers. Commodity currencies still somehow resist the US dollar influence, thanks to oil and other raw materials, while the currencies with low-interest rates have to capitulate to $. The Japanese yen and the Swiss franc bear the brunt of the greenback strengthening caused by Treasury yields’ growth. Judging by the positioning in the derivatives market, the [USDJPY][1] rally’s potential is far from exhausted

The theory of the dollar smile is being implemented on Forex right now. At the first stage, in March 2020, the USD index rose rapidly to 3-year highs amid awareness of the pandemic threat. At the second, in March- January, it collapsed by 13% due to the Fed’s large-scale monetary stimulus. The first week of March turned out to be the best for the US dollar since September. So, the obvious question arises: is it entering the third stage? When does the greenback start to strengthen against competitors due to the faster economic growth?

According to Oxford Economics, global GDP will grow by 6% in 2021. This will be possible thanks to the United States and China. The US contribution to the global economic recovery will be more significant than that of China, which has not happened since 2005. According to Goldman Sachs estimates, the US GDP will expand by 7%, while China’s - by 7%. However, the US economy will become the growth driver of world GDP since it is one-third larger than its main competitor.

The role of the US and China in the global economic recovery

Source: Wall Street Journal.

According to Bloomberg research, if Congress approves Joe Biden’s fiscal stimulus of $1.9 trillion, US GDP will increase by more than 7% in 2021. JP Morgan expects the indicator to reach pre-crisis levels by the middle of this year. Thus, the faster rate of US economic growth compared to its global and developed countries’ counterparts indicates the continuation of the USD index rally. At least in the short term.

Dynamics of the USD index and the ratio of the US economic growth to

the rest of the G9 countries

Source: Nordea Markets.

As a result, [USDJPY][1] bears have been hit by a double blow. First, by the growth of Treasury bond yields against the background of the Bank of Japan’s intention to keep local debt rates at a low level by all means. Second, by the US dollar strengthening. At the same time, if hedge funds are actively adding up to short positions in the Japanese currency (from 789 to 12129 contracts in the week to March 2), then asset managers retained net long positions in the amount of 60162 contracts. They have room to decline, which creates preconditions for the continued rally of the USDJPY pair.

Monthly [USDJPY][1] trading plan

In my opinion, the target of 110 for [USDJPY][1] set [in the previous article][2] will be reached before the end of March. I don’t think the 10-year Treasury yield will stop at 1.75%. It is more likely to rise above 2%. In any case, the yen, as I have repeatedly [said][3] this year, will remain the Forex outsider, and the dollar can well go up to ¥112-113. I recommend buying the yen.

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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