Based on factors such as the different GDP rates and monetary policy of the Fed and the Bank of Japan, then USDJPY sellers have no chance to succeed. Nevertheless, the yen is strengthening, and there is an explanation for this. What is it? Let us discuss the Forex outlook and make up a trading plan for AUDJPY, EURJPY and USDJPY.
Monthly Japanese yen fundamental forecast
At a time when humanity is shifting from offensive to trench war against a pandemic and facing the threat of environmental disaster, the increased demand for safe-haven assets should not be surprising. Apocalyptic forest fires, floods and droughts in Greece, Canada, Turkey, China, Argentina, the United States, along with the spread of the Delta variant across the planet, are supporting the USDJPY bears. The pair is moving sharply towards the lower border of the consolidation range of 108.8-110.9, indicated in the previous article, against the background of disappointing statistics on the US and China, causing anxiety about the fate of the global economy.
There is no need to delude ourselves, believing that the catalyst for the yen strengthening was the growth of Japan’s GDP by 1.3% against the forecast of 0.7% YoY. The economy expanded due to strong external demand for exports and private consumption, but if Japan’s main competitors grew rapidly in the second quarter, the country was only trying to get off its knees. The United States has already reached the pre-pandemic level. The Japanese can only dream about it.
Dynamics of Japan’s GDP
Source: Bloomberg.
If to take into account the divergence in economic growth, monetary policy, or US exclusivity, then the USDJPY bears will not have a single chance. However, they have a joker to beat opponents’ trump cards. Uncertainty around COVID-19 and the threat of an environmental disaster keep Treasury yields under pressure. Differential rates on the US and Japanese debt do not allow the confident greenback to strengthen against the yen.
Due to Donald Trump’s tax reform and Joe Biden’s fiscal stimulus, the Treasury’s outstanding debt has grown by 50% since the end of 2017 and reached $21.7 trillion. Even taking into account the forecast of the United States Senate Committee on the Budget to reduce the budget deficit from $3 trillion to $1.2 trillion this year, the figure will not decrease. It needs low borrowing rates to service it, so the Fed will not rush to normalize monetary policy.
Treasury outstanding debt dynamics
Source: Bloomberg.
If to recall the first decline in the issue of Treasury bonds in the last 5 years, which some investors have already called a supply crisis, Treasury yields are unlikely to go up sharply. The situation is aggravated by the tense epidemiological and ecological situation. Investors did not take on trust the rapid rebound in the GDP of the US, the eurozone and other countries in the second quarter after the problematic first. According to research by S&P Global, cash and short-term liabilities on the balance sheets of corporations around the world are at a record high of $6.84 trillion. This is 45% higher than the 5-year average.
Monthly AUDJPY, EURJPY and USDJPY trading plan
Unless companies are increasing spending, one can hardly expect the same impressive earnings reports as in the second quarter. The rate of the S&P 500 rally will sooner or later decrease, and the correction will be a strong argument in favor of selling AUDJPY and EURJPY in the direction of 77.1 and 127. The USDJPY pair is likely to maintain its tendency to consolidate in the range of 108.8-110.9.
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.
Source: https://www.liteforex.com/blog/analysts-opinions/yen-has-a-joker-forecast-as-of-17082021/
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