USD JPY Forecast

  • Home
  • USD JPY Forecast

USD JPY Forecast

For any of the major currencies, predictions are not easy. The usd jpy forecast is one such example. The key to trading this pair is to understand what the usd jpy news says about it.
usd jpy forecast

The forex forecast we do is based on understanding the relationship that exists between the two currencies.

We will talk about the relationship and how it affects the way that traders view this pair.  After that, you will have a much clearer understanding of why people trade the pair and how they do it successfully. In our usd jpy forecast, we take into account all the things most people overlook.

Many people find the idea of trading the Japanese yen against the U.S. dollar a strange concept. However, when you understand the Yen per the U.S.’ treasury bonds, bulls, and notes, everything, including the usd jpy forecast, becomes easy to figure out.

When you understand that the main drivers of this pair are treasuries and interest rates in both countries, the usd jpy forecast becomes much easier to make. Understanding this tells us that the pair is a measure of risk, which determines when to buy or sell the pair concerning interest rates.

The direction determines the USD/JPY forecast direction that the interest rates take.

The Relationship of the USD/JPY Pair with Treasuries

Traditionally, the USD/JPY pair has been associated with the U.S. Treasury. Every time there is a rise in the bonds, bills, and notes of the Treasury, the USD/JPY prices go down. The logic behind this is that the investments in this pair hinge on the fact that the U.S. would never default on the bond obligations. 

With this logic, the pair is given automatic safe-haven status and makes it suitable for long positions, in doing usd jpy forecast, we never forget to factor this into the equation.

When the interest rates go up during the trading day, or we suspect that they might move up soon, you will notice that the Treasury bond prices will move down. The move will have the effect of lifting the USD/JPY pair and strengthen the prices.

In our usd jpy forecast, we can tell that the market, in its search for yields from the Treasury trades and a lowered price on the pair turns this into a short position.

Yields are the rates of interest paid on any of the Treasury’s instruments. They have an inverse relationship with the prices of bonds. When the returns go down, liquidity increases, and this liquidity has to find a place to fit in. That is how currencies become attractive.

Essential Things to Remember:

  • The USD/JPY pair is closely correlated with the U.S. treasuries
  • When interest rates go up, the Treasury bond prices go down, and this lifts the U.S. dollar, strengthening the USD/JPY pair.
  • The USD/JPY is sometimes used as a determinant of the market risk.

In doing the usd jpy forecast, we look at all the usd jpy news and watch to see how the market reacts. However, there is more to this than looking at the usd jpy news.

The Market Trends

The USD/JPY is used as a determinant of risk sometimes. When markets are searching for risk trades, the Treasury bond yields go up, and the interest goes down. The returns can be seen as a determinant of risk because of the inverse correlation they have to the USD/JPY pair.

They indicate a degree of volatility because of the quick turns, the market can make, in the event of a panic. If the fear hits the market, the Treasury bond prices rise, the yields fall, and the price of the dollar goes down, while the usd jpy forecast shows appreciation.

The reason why this appreciation happens is because the Yen has status as the funding currency.

To explain this better, let’s break it down;

Let’s say that you sell a lower-yield currency like the Yen with the current interest rates below significant currencies like Canada, Switzerland, U.K., and U.S. Investors might look for higher interest rate instruments in the major trading partners and use them for carry-trade purposes.

Carry trade is a significant funding source investors use. In this instance of usd jpy forecast, if you can sell the USD/JPY for U.S. dollars and use the money you get to buy higher-yielding instruments like Treasury bonds, you could raise your returns significantly.

An Example:

If you are a trader who sells the USD/JPY pair at the interest rate of .05% in Japan, and then you purchase Treasury bonds, you can earn 3% interest with a 5% yield. It boosts your returns significantly.

The Relationship with The Stock Market

When a currency pair has an inverse relationship with other instruments, one change on either side can affect the prices significantly. The U.S. stock markets and the USD/JPY pair have this inverse relationship.

When there is a rise in the stock markets, the bond prices go down, the yields go up, and the traders sell the USD/JPY to the opportunity for better returns for the risk projected. Because the USD/JPY pair trades in Asia, our usd jpy forecast has to include that angle of it too.

The same bond, dollar, and stock correlations hold there as they do in the United States. When the Japanese government bonds go down in Asia’s trading session, the USD/JPY pair is down too. The bond yields and Japanese stock markets go up.

Keeping an Eye on the Opportunities

Both short- and long-term investors might want to use different trading strategies for the USD/JPY pair. In our usd jpy forecast, we think it is always important to look at the S&P 500 index for early warnings that could tell you what is going to happen to these correlations.

Short-term traders might want to monitor the market in two-year cycles, for example. Long-term traders might want to look at the 10-30-year bond numbers. The changes in this correlation may happen because of several reasons.

An example:

Let’s say the U.S. issues more debt by sales of their Treasury bonds and, in this way, injects more money into the system. The bond prices may dilute, and the effects on the usd jpy forecast may vary. If the U.S. buys back the Treasury bonds, adding money to the system, what would that mean for the USD/JPY pair?

The answer here is not absolute and will vary per the economic landscape when compared to the recessionary environment.

The point here is that the usd jpy forecast is a complex one that takes more than just knowing what is happening in the news to see an opportunity.