Japanese Yen price forecast 17 March 2021

2021-03-17

Bank of Japan is gaining ground. Forecast as of 17.03.2021Dmitri Demidenko

While the Fed may not worry about the rally in Treasury yields, the sell-off in the US debt market makes the Bank of Japan officials very satisfied. Why? Let us discuss the Forex outlook and make up a [USDJPY][1] and [EURJPY][2] trading plan.

Quarterly Japanese yen fundamental forecast

While the Fed is preparing to provide evidence that it will remain passive for a very long time without making adjustments to monetary policy, the ECB is trying its best to slow down the rise in European bond yields. The Bank of Japan looks forward to future benefits. The regulator has struggled with deflation to no avail for years, but now the situation has begun to improve. The yield curve control, introduced in 2016 by the Bank of Japan, is starting to pay off.

The current Governor of the Bank of Japan, Haruhiko Kuroda, resembles a boxer who was quickly knocked down but managed to get up and continue the fight. He needs to work out a strategy on stopping deflation, and it looks like his plan is working. The monetary stimulus launched in 2013 increased the BoJ balance to 135% of GDP, making the central bank a whale in Japan’s debt market pond. Is it any wonder that local bond sellers are passive? They are getting rid of bonds with an eye on the Bank of Japan and have managed to raise the yield on 10-year bonds only to 0.175% with the target range of about 0.2%. As a result, the USDJPY prices depend only on the situation in the US debt market.

Dynamics of [USDJPY][1] and US bond yields

Source: Bloomberg.

The yen weakening is crucial to Haruhiko Kuroda. What a large-scale monetary stimulus has failed to do will be implemented by a yield targeting policy. Thanks to the depreciation of the national currency, exports and the situation with deflation will improve. Moreover, households that accumulated record amounts of assets will think about spending them (in 2020, their value increased by 2.9% and reached $ 17.85 trillion).

Dynamics of the Bank of Japan’s balance sheet and inflation

Source: Bloomberg.

Thus, the BoJ does not need to do anything extraordinary at its meeting on March 18-19. The regulator should observe and wait for others’ mistakes. It’s not for nothing that Deutsche Bank calls the upcoming meeting of the Board of Governors the most boring and predictable since 2016, which cannot be said about the Fed meeting.

Quarterly [USDJPY][1] and [EURJPY][2] trading plan

If the yen price depends on the US debt market, then the continuation of the rally in Treasury yields is what the Bank of Japan will welcome. Jerome Powell should not overdo it and scare away US bonds sellers. In this scenario, 10-year Treasury rates will continue rallying towards 1.85%, as option traders expect, and [USDJPY][1] will grow towards 112 and 114.

As for [EURJPY][2], it is unlikely that by increasing weekly asset purchases to €14 billion within the PEPP, the ECB can guarantee to stop the rally in European bond yields. The recent drop of the pair’s price is related to talks about the refusal of Germany, France, and Italy from the AstraZeneca vaccine due to the alleged side effects. However, after the European Medicines Agency has confirmed that a vaccine’s benefits outweigh its disadvantages, the euro began to gain ground. At least against the yen. As with [USDJPY][1], I recommend buying [EURJPY][2] on the corrections with targets at 132 and 134.

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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