Japanese Yen price forecast 10 August 2021 | USDJPY Fundamental analysis

2021-08-10 2021-08-10
Yen rises. Forecast since 10.08.2021

Dmitri Demidenko

USDJPY finally got up. However, the further fate of the pair depends on the dynamics of the yield on US Treasury bonds and exceeding key levels. Let’s discuss the Forex perspective and create a trading plan.

Monthly Japanese internal fundamental forecast

A five-day U.S. fiscal rally has put an end to the heroism of the yen. The Japanese currency is in a difficult situation. USDJPY sighs entered at levels 109.85 and 110.15 is in the money, while the clumsy attempts by the Japanese government to revise the CPI basket to win the election along with the latest financial statements from the world’s largest pension fund, GPIF, are only making matters worse.

Perhaps the main paradox of 2021 is the stubborn reluctance of treasury yields to rise in response to the rapid recovery of the global economy and rapidly rising inflation in the United States. In such conditions, risk-free assets are usually sold. It is possible to discuss at length too swollen speculative shorts, as well as the fact that in March the forecasts for US GDP looked too optimistic against the background of the uncertainty that continues around COVID-19. More important to us is what will happen to bond yields in the future.

According to Goldman Sachs, BofA Global Research, and BlackRock, 10-year tax rates will rise to 2% by the end of 2021 amid strong consumer activity, tight labor market conditions and the impact of fiscal stimulus. In contrast, HSBC believes yields will remain at current levels as inflation is driven by temporary supply problems. They will be eliminated and the US economy will slow down. The first scenario is disastrous for USDJPY bears. In the second case, the yen will continue to resist the dollar.

Dynamics of USDJPY and a spread of 10-year U.S. and Japanese bonds

Source: Investment, LiteForex calculations.

Interest rate interest rates in the debt market are extremely important for large investors. In particular, GPIF managed to grow its assets to a record ¥ 191.6 trillion due to an increase in income from investments in foreign stocks and bonds by 8.6% and 1.9%, respectively. The yield of local similar securities was 0.3% and 0.9%, respectively.

Japanese Prime Minister Yoshihide Suga decided to win the election by revising the consumer price basket, as a result of which core inflation fell by 0.5% in June after rising by 0.2% in May. This will seriously complicate the BoJ’s task of overcoming deflation and keeping its monetary policy very soft for a very long time. This is also a bearish factor for the yen.

Investors may be wondering why, amid growing concern about Delta, oil is falling, but reliable assets like Treasuries and yen are being sold? In my opinion, the answer is simple, as the U.S. economy grows faster than the world, the dollar strengthens. This can be seen in the dynamics of the USD index and S&P 500/WTI ratio.

Dynamics of the US dollar and the US dollar S&P 500/WTI ratio

Source: Investment, LiteForex calculations.

Month USDJPY business plan

In my opinion, level 110.9 serves as the limit for USDJPY. In the case of exceeding the mentioned level, the pair can reach unprecedented heights. A failed escape will lead to a mid-term consolidation in the 108.8-110.9 range. In this regard hold the before formed lengths, and when you approach a significant level, partially come out long, on the contrary, add them according to the closure of the test shelf.

USDJPY price chart in real-time mode