The Bank of Japan will have to normalize its monetary policy sooner or later. If it happens in 2024, the federal funds cut will encourage the USDJPY bears. Let us discuss the Forex outlook and make up a trading plan.
Weekly Japanese yen fundamental forecast
The New Year will bring good news. The Japanese yen had been an underdog for the eleven months of 2022. However, it turned out to be a good performer in December. Due to hints by BoJ officials about normalizing monetary policy, the USDJPY price crashed. Looking at the pair’s downtrend, there was a feeling of deja vu: in December 2022, it collapsed due to the central bank’s unexpected expansion of the targeted yield range. Is it the beginning of the yen rally?
It can hardly be stated what impressed investors more. Is it Kazuo Ueda’s statement that his job will become even more difficult in late 2023 – early 2024 and that the Bank of Japan has several options for implementing monetary policy as soon as rates are no longer negative? Or is it the theory of winners and losers, voiced by his deputy Ryozo Himino, if the interest rate rises? Some economists believe Prime Minister Fumio Kishida will fire some government officials who advocated ultra-easy monetary policy, encouraging the BoJ hawks.
According to two-thirds of experts surveyed by Bloomberg, the Japanese central bank will start monetary normalization in the period between December and April. Moreover, half of the 52 respondents believe this will happen this month. This is a stark contrast to the November survey when only 29% of economists thought changes should be expected before April. Unsurprisingly, the USDJPY two-week risk reversals have hit their lowest point since July.
Dynamics of USDJPY risk reversals
Source: Bloomberg.
At one point after BoJ officials’ comments, the derivatives market gave a 45% chance of the negative interest rate policy being lifted in December. If the Bank of Japan starts hiking interest rates while the Fed continues cutting them, the USDJPY bulls will be set back. Unsurprisingly, the Commonwealth Bank of Australia sees the US dollar below ¥140, and the ING forecasts it to fall to ¥130.
Dynamics of bond yields and BoJ interest rate
Source: Bloomberg.
The USDJPY wouldn’t have dropped so dramatically but for the excessive yen shorts. In the week ended December 5, the yen speculative shorts reached the highest levels since April 2022. According to CME Group estimates, the trading volume of Japanese currency on December 7 amounted to $74.8 billion, the maximum in 2023.
However, many USDJPY bulls continue to stick to their long positions. The yen sellers argue that Kazuo Ueda’s words were taken out of context, and the drop in Japan’s GDP to 2.9% in the third quarter turns the central bank dovish. They say that the yen strengthening will press down the export-led economy.
Weekly USDJPY trading plan
I suppose the BoJ monetary normalization is necessary. The divergence in monetary policy will make the yen one of the best performers in 2024. It will be relevant to sell when the USDJPY rebounds down from resistances at 146.9 and 147.9 or fails to consolidate above 146.1.
Price chart of USDJPY in real time mode
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منبع: https://www.litefinance.org/blog/analysts-opinions/yen-pleases-the-bulls-forecast-as-of-11122023/
