Japanese Yen price forecast 12 April 2021

2021-04-12

Will geopolitics save yen? Forecast as of 12.04.2021Dmitri Demidenko

[USDJPY][1] bears were enthusiastic about the fall of US Treasury yields, contributing to the pair’s most significant sell-off since November. Perhaps the US debt market is not the only reason for the rollback. Let us discuss this question and make up a trading plan

Weekly yen fundamental analysis

Under Donald Trump, America’s main enemy was China. Under Joe Biden, it is going to be Russia. The White House calls Nord Stream 2 a bad deal, threatens the Kremlin with new sanctions, and is interested in escalating Russia and Ukraine’s geopolitical conflict. At the same time, Washington is blacklisting Chinese super-computer companies and preparing a Strategic Competition Act for congressional consideration to counter China. Over the past few weeks, Beijing has increased the number of aircraft in Taiwan’s airspace, and Israel has attacked the Iranian naval vessel Saviz. Therefore, geopolitical risks are mounting, which has historically been good news for the US dollar.

Dynamics of the US dollar and the Uncertainty Index

Source: Nordea Markets.

As a rule, this factor is realized by increasing demand for treasury bonds, which leads to a decrease in their yield. Nevertheless, in March, the rally in US debt market rates was the main driver of the greenback strengthening, so other safe-haven currencies such as the yen and the franc can benefit from the escalating geopolitical risks.

The [USDJPY][1] featured the worst drop since November in the first full week of April. Investors get a clear explanation of whether an increase in the [S&P 500][2] or a decline in Treasury yields is a more powerful argument for the USDJPY bears. Even though the US stock index continues to update highs, the dollar price against the yen, ¥109-109.5, weakened due to falling debt rates. At the same time, the release of US data on consumer prices in March may return investor interest in Treasuries’ sale, which will be a real blow to the yen. According to Bloomberg experts’ forecasts, CPI will accelerate to 2.4%. Judging by the rise in producer prices to 4.2%, the actual data is likely to surpass estimates.

The [USDJPY][1] volatility could substantially surge in the week ending April 16. The pair will be influenced by rising geopolitical risks and fears of US inflation soaring to 3% or more over the next few months. The dynamics of the Japanese currency will continue to depend on foreign environment, while the idea to trade on the vaccination progress, popular in 2021, will hardly affect the yen prices. In terms of the vaccination rate, Japan is one of the outsiders among the G-7, but based on mortality, the country’s situation does not look doom.

Vaccination rate

Source: Bloomberg.

COVID-19 mortality rate

Source: Bloomberg.

Weekly [USDJPY][1] trading plan

In my opinion, the yen’s fate will continue to be in the hands of the US debt market. In the long term, due to the explosive growth of the US economy, the rally in Treasury yields is likely to resume, allowing the [USDJPY][1] bulls to recover the uptrend. Nevertheless, in the short- term, geopolitics and stabilization of the Treasury bond market are fraught with a continuation of a pullback or consolidation. I recommend buying on the breakout of the resistances at 109.8 and 110 with targets at 112 and 114.

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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