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Japanese Yen price forecast 22 March 2021

2021-03-22

2021-03-22

Yen needs an explanation. Forecast as of 22.03.2021Dmitri Demidenko

After stopping buying stocks ETFs and expanding the target range for 10-year bond yields, Haruhiko Kuroda was forced to explain. How will this affect [USDJPY][1]? Let us discuss this question and make up a trading plan.

Weekly yen fundamental analysis

While the Fed is not going to abandon the ultra-easy monetary policy, and the ECB intends to increase asset purchases, the Bank of Japan is removing the phrase about the acquisition of stock ETFs in the amount of ¥6 trillion per year from the accompanying statement. The BoJ is also expanding the target range of 10-year bonds from +/-0.2% to +/-0.25%. [Nikkei 225][2] immediately collapsed, believing that it was a question of monetary restriction. However, in reality, the BoJ intends to reduce the side effects of its policies.

A sell-off in Japan’s stock indices was not part of the Board of Governors’ plans. Haruhiko Kuroda was forced to explain to investors that the central bank does not refuse to buy specialized exchange-traded funds. He believes that the higher the volatility, the higher the efficiency of intervention in the stock market’s life. Therefore, the BoJ will continue to buy ETFs, but in times of shocks at financial markets in the amount of up to ¥12 trillion. The Japanese regulator is following the same path as in the case of bonds. The initial purchase price was ¥50 trillion, then it increased to ¥80 trillion, after which the Bank of Japan refused to determine specific amounts in 2016 and began to target profitability.

Indeed, it is unreasonable to talk about tightening monetary policy at a time when Japanese inflation, unlike the US or European ones, fails to recover.

Inflation dynamics in the US, Eurozone and Japan

Source: Bloomberg.

If the [Nikkei 225][2] collapse in response to the message about the termination of buying stocks ETFs looks logical, then the decline in Japanese bond yields looks illogical. The widening of the target range encourages the bond sellers to go ahead, but prices, on the contrary, have risen. What’s the matter? I think these are signs of a global trend. The rhythm of the market is set by rates on 10-year Treasuries. Its inability to hold above 1.7% triggered a pullback in both Japanese bond yields and a [USDJPY][1] uptrend.

Demand for safe-haven assets has grown amid the failure of the first US- China talks since Joe Biden took office. The parties blamed each other, and it became clear that Washington does not intend to reset relations with Beijing, as China had hoped. On the other hand, there is no reason to count on the trade war’s resumption, so the pullback in Treasury rates is unlikely to be prolonged. The resumption of growth will contribute to the recovery of the [USDJPY][1] uptrend.

Weekly [USDJPY][1] trading plan

As the yield on US Treasuries rises, the yen regains its status as the Forex’s main safe asset. The widening of the differential of interest rates on the US and Japanese debt rates allows carry traders to sell it as a funding currency along with a greenback. In this regard, the [S&P 500][3] pullbacks also lead to a fall in [USDJPY][1] price. I don’t think the tech sector sell-off is serious because this is crucial for the US’s future. In this regard, the pullback of the pair from the supports at 108.15 and 107.9 should be used for purchases.

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. my.liteforex.com/trading/chart?symbol=NI225&returnUrl=true
  3. my.liteforex.com/trading/chart?symbol=SPX&returnUrl=true