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JPY Q2 2021 Fundamental Forecast

    • 2507 posts
    April 13, 2021 3:03 AM EDT
    As anticipated, the Japanese Yen started off the new year on a sour
    note. Taking a look at a majors-based index on the chart below, JPY
    weakened as much as 6 percent before cautiously stabilizing towards the
    tail end of March. The anti-risk currency remained fairly depressed
    despite some emergence of global stock market volatility, especially
    from the technology sector. This could spell some trouble for the Yen as
    traders further settle into 2021.To get more news about WikiFX, you can visit wikifx.com official website.



    A growing theme from the first quarter has been rising global growth and
    inflation expectations. Fairly swift vaccination rollouts in the United
    States, as well as President Joe Bidens US$1.9 trillion Covid relief
    package, have been driving up longer-term Treasury yields. The markets
    are slowly pricing in that the Federal Reserve could begin hiking rates
    sooner than expected. Fed Funds Futures indicate that there is about a
    60% chance of a hike by the end of 2022.



      Meanwhile, the Bank of Japan seems more likely to keep its loose
    monetary policy taps open for longer. Benchmark lending rates in Japan
    have been negative for some time due to a persistent struggle of trying
    to bring up stubbornly low inflation. The central bank did announce in
    March that it would implement a yield range target of about 25 basis
    points on either side of the 10-year yield mark of 0.0%. As such, JPY
    will likely be vulnerable to rising external bond yields, remaining a
    key funding currency for the carry trade.

    While central banks such as the RBA and ECB have taken a more prominent
    stance against rising longer-term bond yields, the Fed appears to be
    relatively more sanguine. Chair Jerome Powell expressed little concern
    about them in March, perhaps leaving the door open for yields to
    continue climbing alongside growth expectations. That may leave the
    Japanese Yen vulnerable as traders chase returns outside of the
    island-nation economy. However, that doesnt mean that it is all clear
    for the Yen to resume its downward trajectory.



      For one thing, the relatively slow rollout of Covid vaccines in Europe
    is working to cool GDP estimates. Hiccups can emerge, such as with what
    happened when Hong Kong suspended Pfizer-BioNTech vaccinations amid
    packaging defects. There is also the outcome of where core inflation,
    particularly out of the US, disappoints relative to headline figures.
    The former matter more to the Fed, especially as it views near-term
    inflationary pressures as transitory.



      Still, President Biden is anticipated to deliver more fiscal support,
    via infrastructure spending. This could further boost economic growth,
    opening the door for Treasury yields to resume last years bottom.
    Consequentially, this may add life to the rotation trade out of growth
    and into value stocks. Further market volatility may thus offset some
    weakness in the anti-risk Japanese Yen depending on price action in
    global government bond yields.