Yen: empty talk. Forecast as of 20.04.2022

Since the beginning of the year, the yen has lost about 12% of its value, most of the losses occurring in March-April. Obviously, the Japanese government does not like this. Will verbal interventions stop USDJPY bulls? Let us discuss the Forex outlook and make up a trading plan.

Weekly yen fundamental forecast

Seeing is believing. Investors have stopped responding to verbal interventions by the government and the Bank of Japan. They have been selling the yen against the US dollar for 14 days. This is the longest losing streak for the Japanese currency since 1971. Asset managers’ yen net shorts hit an all-time high, while hedge funds’ net short trades peaked in three years. Amid the massive divergence in Fed and BoJ monetary policy, USDJPY is highly expected to reach level 130.

Dynamics of USDJPY and speculative yen positions

Source: Bloomberg.

It is generally accepted that the price of the yen is highly sensitive to the officials’ statements. Recently, the BoJ head, Haruhiko Kuroda, said that the recent yen weakening was very fast, which negatively affects companies’ business plans and forces the BoJ closely monitor Forex. However, this statement did not stop the USDJPY bulls. Finance Minister Shunichi Suzuki’s statement also did not help. He argued that a weak yen is doing more harm to the economy than good. Market participants accuse the government of “empty talk” and are trying to determine when the BoJ will return to foreign exchange intervention.

The last time the Bank of Japan sold the dollar against the yen was in June 1998. It also intervened in Forex in November 2011. Back then, it was about buying USDJPY as the huge foreign trade surplus made the yen too strong. Now, due to high energy prices and a rapid USDJPY rally, Japan is facing a negative foreign trade balance for the eighth month in a row, the longest streak since 2015.

The main driver of the USDJPY uptrend is the divergence in the monetary policy of the Fed and the Bank of Japan. FOMC officials unanimously declare the need to bring the federal funds rate to a neutral level of 2.25-2.5% as early as 2022, while the yield on 10-year Treasury bonds has approached the 3% mark. The BoJ offers unlimited purchase of 10-year sovereign debt obligations to keep rates at 0.25%. A very unexpected move!

Dynamics of Japanese bond yield

Source: Bloomberg.

One more fact proves that a serious USDJPY correction will not happen soon. Due to Good Friday and the closure of the US securities markets, insignificant Forex liquidity and overly inflated yen short trades could lead to the consecutive triggering of stop orders and a serious USDJPY price drop. However, this did not happen, indicating total control by the USDJPY bulls.

USDJPY trading plan for a week

In such conditions, even minor corrections can become the basis for entering USDJPY long trades with a target at level 130.

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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