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Japanese Yen price forecast 1 September 2021 | USDJPY Fundamental analysis


Sooner or later, any consolidation comes to an end. The USDJPY pair’s one has been too long. It’s time to move on to the trend. Which one? Let us discuss the Forex outlook and make up a trading plan.

Monthly Japanese yen fundamental forecast 

People don’t just give up power. Despite falling ratings, Japanese Prime Minister Yoshihide Suga intends to keep his post. Rumors of his desire to dissolve parliament in mid-September, set the date for the general election on October 17, and postpone the vote on leadership in his own Liberal Democratic Party from September 29 to a later period provoked a USDJPY rally. The pair has been in consolidation for a long time, but this cannot continue indefinitely.

According to Bank of America, rising political risks in Japan, an increase in the number of mergers and acquisitions outside the country and the creation of a new National University Research Fund with an initial capital of ¥4.5 trillion will increase the volatility of the analyzed pair and strengthen the US dollar up to ¥116. As the Fed is winding down monetary stimulus and Japan is ready to return to an era of frequent government changes, investors are forced to move capital out of Japan. In this case, the USDJPY pair can only grow. Especially in the context of Japan’s transition to a negative base balance of payments in the fourth quarter.

Dynamics of yen volatility

   

Source: Bloomberg.

Due to the elections, rumors are growing that either Yoshihide Suga or his successor will interfere in monetary policy. The likelihood of this is minimal. The government wants the Bank of Japan to adhere to the easy money policy or soften it. BoJ’s deputy governor, Masazumi Wakatabe, says it doesn’t make sense to do this right now, but if the timeline for economic recovery due to the Delta is delayed, the central bank is ready to use all its power.

Wakatabe warned about the risks of early QE withdrawing. Even if the Fed takes the path of monetary policy normalization, and rising commodity prices will accelerate inflation in Japan, it is premature to abandon monetary stimulus.

Dynamics of the BoJ balance sheet

   

Source: Bloomberg.

Investors expect the BoJ to turn dovish in September and GDP and other macroeconomic indicators to lower in October. Against this background, the Fed’s readiness to begin tapering the QE program for $120 billion per month has a favorable effect on the USDJPY bulls.

Thus, the divergences in US-Japan economic growth and in monetary policy, the growth of political risks in Japan and the associated capital flow from Asia to North America create the preconditions for the analyzed pair to leave the range of medium-term consolidation with subsequent growth.

Monthly USDJPY trading plan

Recovery of the USDJPY uptrend looks very likely, provided a strong US jobs report for August and a rally in US Treasury yields. My forecasts about the growth of the pair to 111.7 and 113.7 remain valid. I recommend buying the pair.

       

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.

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