Yen lost faith. Forecast as of 24.04.2023

2023.04.24 2023.04.24
Yen lost faith. Forecast as of 24.04.2023logo

The USDJPY bears look discouraged. Earlier, investors expected a recession in the USA and the monetary normalization by the BoJ. Now comes the understanding that the plans will have to be postponed. Where will the USDJPY go? Let us discuss the Forex outlook and make up a trading plan.

Weekly yen fundamental forecast

The Fed’s confidence in the strength of the US economy is being transmitted to financial markets as hedge fund bets on the sale of 10-year Treasury futures hit an all-time high of 1.29 million contracts. At the same time, the statement by the new the Bank of Japan governor, Kazuo Ueda, that yield control and a negative interest rate are now appropriate shifts the expected timing of the BoJ monetary tightening to almost the second half of 2024. The USDJPY is naturally growing.

The yen had two advantages that made it one of the top G10 performers. They were the risks of a soon recession in the USA and the hopes that the new BoJ governor would start monetary normalization. The BoJ monetary policy had been eased since 1999. Next, there were introduced negative interest rates, the QE, and the yield curve control policy.

Kazuo Ueda is open to monetary normalization in the long run but will hardly start it in the near future. Therefore, investors do not expect anything from the BoJ April meeting. It will be a surprise if the Bank of Japan announces that it has begun to study the impact of previous measures on the economy in order to adjust them in the future. Nomura believes that there will be no change in the yield targeting policy before June. The derivatives market completely shifted expectations of an interest rate hike to a later period. This is also because of the upcoming elections. Since 1989, the BoJ has never resorted to monetary restrictions in the run-up to a vote.

Dynamics of expectations for BoJ interest rate

Source: Bloomberg.

I don’t think that rising core inflation in Japan for the 10th consecutive month from 3.5% to 3.8 % in March, the highest level since 1982, will make Kazuo Ueda abandon the yield curve control in April. The central bank has repeatedly stated in the past that this requires a significant increase in average wages, which currently leaves much to be desired. However, even in December, no one expected decisive steps from BoJ, but the regulator made them.

Dynamics of Japan’s inflation

Source: Reuters.

I suppose the yen will further weaken unless the BoJ gives any signals of adjustments to monetary policy. The yen price partially includes the normalization factor; if the speculators cancel these bets, the USDJPY will get more bullish drivers.

Weekly USDJPY trading plan

Furthermore, the concerns about a soon recession in the US economy has been easing, pressing down safe havens, such as the yen, the franc, and Treasuries. The US dollar is supported by a rise in Treasury yields. If the US GDP shows robust growth in the second quarter and the US PCE index is up, one could buy the USDJPY.

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 LiteFinance. 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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