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What can work best for safe-haven assets than a panic in financial markets and the bank system’s crisis? The absence of alternatives! The Japanese yen is exploiting the problems of the USD, the euro, and the Swiss franc to the fullest. Let’s discuss it and make a trading plan for USDJPY.
Weekly fundamental forecast for yen
From loser to winner. The Japanese yen has developed from an ugly duckling to a beautiful swan thanks to the bank crisis. Hedge funds were actively selling it at the end of the first ten-day period in March, and their speculative shorts reached the highest since September. The bankruptcy of American banks gave rise to snowballing sales of the USDJPY, allowing the pair to reach the first of the two targets projected earlier — 132 and 130. The other one could be reached soon.
USDJPY and speculative positions in yen
Source: Bloomberg.
Investors’ dislike of the yen looked normal in February and early March. Japan needed to finance its enormous current account deficit, but bond rates around zero wouldn’t certainly help there. At the same time, the improvement of the US macrostatistics raised the probability of a higher funds rate to 5.75%, increasing the differential between the US’ and Japan’s bond yields and pushing the USDJPY to its highest since mid-December.
The situation worsened as the Bank of Japan was unwilling to abandon its ultra-easy policy. As seen from the minutes of the latest meeting, the BoJ estimates risks related to an earlier withdrawal of stimuli as higher than risks related to a later normalization.
If not for a black swan (a bank crisis), the USDJPY would’ve continued moving up, but the bankruptcy of financial institutions in the United States made investors love the yen. The main reason is the absence of alternatives in Forex. Outside the currency market, gold, treasuries, and Bitcoin were bought like hot cakes. Inside it, the greenback couldn’t act as a safe haven amid falling treasury yields, a drop of the target federal funds rate upper limit to 5%, and a revival of dovish whispering within the Fed. The franc isn’t considered a protective asset either because of the trouble around Credit Suisse. And neither is the euro, as the ECB refuses to raise rates at the next meetings. So, the yen is flourishing amid this general market panic.
Major currencies evolution
Source: Bloomberg.
What’s next? The Fed’s meeting will be a key event for the USDJPY. Jerome Powell will most likely raise the funds rate by 25 basis points to 5%, but that’s not what will interest investors. If they see signs of an ending monetary restriction cycle in the FOMC’s forecasts and Fed Chair’s comments, the dollar will weaken against the major currencies.
Weekly trading plan for USDJPY
On the contrary, if the Fed keeps firm and leaves room for further tightening, the interest in the greenback will revive for some time. If that scenario plays out, fix profits on USDJPY shorts. If not, build them up, and let’s hope to reach the targets of 130 and 128.5.
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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