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Japanese Yen price forecast 29 March 2021

2021-03-29

2021-03-29

Headwind blows yen away. Forecast as of 29.03.2021Dmitri Demidenko

The capital flow from Japan to the US due to the increased attractiveness of US assets, slow vaccination rate, and economic growth divergence create a headwind for the [USDJPY][1] bears. Can they handle it? Let us discuss the Forex outlook and make up a trading plan.

Monthly Japanese yen fundamental forecast

Nothing is more permanent than a temporary solution. In the next year or two, financial markets are going to test the truth of this statement. The Fed believes the surge in US inflation will be temporary and is ready to tolerate PCE above 2%. Treasury bond bulls are also confident that the rise in Treasury yields will be short-term because the long- term structural factors that drove debt market rates to historic lows during the recession are still relevant.

According to PGIM, an aging population and low productivity growth will lead to the end of the US Treasury bond sell-off and a drop in yields. For the company, the current growth of debt rates is a reason to buy treasuries. The majority, counting on the continuation of the 10-year bond yields rally to 2% under the influence of GDP and inflation acceleration, is wrong.

The question of the future of rates is crucial for the yen. Even though the Bank of Japan expanded the target range of 10-year bond yields from +/-0.2% to +/-0.25% at its March meeting, it remains extremely narrow. The [USDJPY][1] pair is forced to react to the dynamics of US debt market rates.

Dynamics of [USDJPY][1] and US 10-year bond yields

Source: Trading Economics.

Japan is losing its competitors because of the increased attractiveness of foreign assets and the slow vaccination rate. The media constantly accuse the European Union, which managed to vaccinate 15.1% of the population. In Japan, the figures are much lower – only 0.7%! So far, only medical personnel have been inoculated, and the mass vaccination campaign should start only on April 12 with people over 65 years old. For Tokyo, which plans to host the Summer Olympics, the situation looks disastrous.

The return of US stock indexes to the record highs contributed to the [USDJPY][1] rally to July highs. This indicates a growing global risk appetite and a negative impact on safe-haven currencies.

Thus, there is no reason to doubt the strength of the USDJPY uptrend. Economic growth and vaccination rates divergences contribute to widening the differential between the US and Japanese bond yields and strengthening the US dollar against the yen. In the short term, due to the increasing risks of an escalation of the trade conflict between Washington and Beijing, the demand for safe assets may grow. In the long run, structural factors such as an aging population and declining productivity have the potential to stall a Treasury yields rally.

Monthly [USDJPY][1] trading plan

However, in the medium term, the markets, impressed by the upcoming Joe Biden’s $3 trillion fiscal stimulus, are not going to give up the idea of testing the rates on 10-year US debt bonds at the levels of 1.75% and 2%. If so, then the potential of the [USDJPY][1] uptrend is far from being fulfilled. [In the previous article][2], I talked about the targets at 112 and 114. I believe that they are still relevant. Therefore pair corrections should be used to enter long trades.

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. www.liteforex.com/blog/analysts-opinions/bank-of-japan-is-gaining-ground-forecast-as-of-17032021/