USD/JPY Forex Forecast

US Dollar / Japanese Yen Exchange Rate Forecast

Written by Joel Kruger, Technical Currency Analyst; John Rivera, Currency Analyst; David Song, Currency Analyst

Despite the latest sharp monthly reversal off of the 87.15 matched trend lows from December and January, the market remains confined to a prominent downtrend with the current rebound merely classed as corrective. A daily double bottom has been triggered, and ultimately we project additional gains back towards the 104.00 area (measured move objective/20-Month SMA), from where a fresh lower top is sought ahead of the next downside extension back below 87.15 to expose the 79.70 historic lows from April 1995.

The US Dollar/Japanese Yen pair continues to be unaffected by interest rate expectations between the Federal Reserve and the Bank of Japan. Traditionally risk sentiment has driven price action for the pair with risk aversion flows favoring the Yen. However, that relationship disappeared in February as the USD/JPY rallied despite a large sell off in global equity markets.  A year-over-year fourth quarter contraction of 12.7% in GDP for the Japanese economy has put its safe-haven status in doubt.

USD/JPY Forex Forecast

The token 2 bps increase in Japanese interest rates expectations over the next twelve months based on Credit Suisse overnight index swaps, reminds us that the BoJ has traditionally kept rates near zero. Therefore, with the Fed funds rate expected to increase by 41 bps, we could see the Yen resume its position as a funding currency which could add to its weakness going forward.

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