Yen is held back. Forecast as of 27.01.2022

2022-01-27 2022-01-27
Yen is retained. Forecast of 27.01.2022

Dmitri Demidenko

A successful start does not guarantee victory. La USDJPY bulls must move forward amid rising expectations of a more aggressive Fed monetary tightening.

Fundamental yen forecast for year

Rising demand for safe havens, capital repatriation of Japanese investors, and talks about the start of the BoJ’s monetary tightening have made the yen truly popular. At the end of 2021, the Japanese yen was among the outsiders of the G10, but it became one of the best players in early 2022. However, Jerome Powell’s receptive attitude at the press conference after the January FOMC meeting discouraged the USDJPY bears.

Japanese investors have been actively investing in US stocks, and they were right. For the last three years, the capitalization of the S&P 500 doubled, in 2021, the stock index marked 70 record closures and an almost 30% increase. The problem is that the withdrawal of monetary stimulus, the slowdown in the US economy and the lack of new fiscal support packages paint a much less rosy picture for the US market than in 2021. Therefore, in the middle of the S&P 500 correction, Japanese investors began to return money to their homeland, sending the USDJPY down.

Another bearish driver for the dollar against the yen was allegedly exaggerated expectations about the pace of the Fed’s monetary tightening and talk that the BoJ would take a step towards normalizing its monetary policy. Based on the most recent minutes of the BoJ meeting, some members expressed the view that inflation could approach 2%, making it necessary to study the sustainability of the factors underlying its growth. Unfortunately for the bulls inside, most politicians support the ultra-easy monetary policy.

The U.S. dollar started the year badly as investors worried that three or four rates would lead to a recession, and the Fed would have to backtrack to avoid it. However, Jerome Powell called the US economy strong and the labor market capable of withstanding monetary stress. He did not rule out a tax increase at several FOMC meetings in a row. As a result, the yield curve has fallen but is still far from zero, signaling an imminent recession.

Yield curve dynamics and expected Fed rate hike

Source: Bloomberg

According to Bloomberg experts, USDJPY should end 2022 at 113, and the yen is one of the most underrated G10 currencies in terms of purchasing power parity. However, I believe the USDJPY outlook remains bullish, at least in the first half of the year.

USDJPY business plan for a year

Yes, the US stock market is off to a bad start. However, quarterly quarterly corporate earnings projections of 27% are robust, and real bond yields are still near historically low levels. The post-pandemic global economic recovery will improve buy down rather than sell up. So the S&P 500 stabilizes, money will flow again from Japan to the United States, weakening the yen. Therefore, I remain mine USDJPYforecasts suggesting that the pair should trade at 117, 118, 117 and 115 by the end of March, June, September and December. The business recommendation is to buy.

USDJPY price chart in real-time mode