Donald Trump has complained that Japan is making a fortune off the US. The White House will take measures against Tokyo. Meanwhile, the Japanese yen is outperforming its G10 counterparts. Let’s discuss these topics and make a trading plan for the USDJPY pair.
The article covers the following subjects:
Major Takeaways
- Japanese wages are rising at the fastest pace since 1992.
- Japanese bond yields hit their highest point since 2008.
- Donald Trump is dissatisfied with the relationship between Tokyo and Washington.
- Short trades on the USDJPY pair with a target of 145 can be opened on upward pullbacks.
Weekly Fundamental Forecast for Yen
The yen is the top-performing currency among its G10 counterparts, taking advantage of both monetary policy divergence and its safe-haven status. The ongoing trade tensions between the US and China, along with deflation in China, pointing to weak domestic demand, support USDJPY bears as much as the BoJ’s commitment to continue the cycle of monetary restriction. The Japanese yen’s status as a haven for Asia is a primary factor influencing these trends.
The Bank of Japan has clearly defined its priorities. It will continue to raise the overnight rate in the presence of high inflation and accelerating wages. These developments are already underway. In January, the country’s base pay increased by 3.1%, marking the fastest pace since 1992.
Japan’s Average Monthly Cash Earnings
Source: Bloomberg.
According to Bloomberg, the Policy Board will refrain from raising rates in March, as the central bank should assess the consequences of the impact of the White House policy on the US and global economy. The decision is also influenced by the significant rise in Japanese bond yields to their highest level since 2008. This has led to increased borrowing costs and created challenges for the government.
In contrast, investors have shown a muted response to the recent five-year debt auction, anticipating higher yields in the near future.
Japan’s 10-Year Yield
Source: Bloomberg.
USDJPY bears also receive support from signs of a recession in the US economy, which keeps US Treasury yields under pressure. The narrowing Japan-US bond yield spread allows speculators to buy the yen against the US dollar. Concerns regarding the implications of Donald Trump’s policies for businesses and the general public are also contributing to this trend. Notably, tariffs are a primary concern. The absence of any direct impact from the Republican administration on Japan has contributed to the yen’s strength.
However, challenges are gradually emerging on the horizon. The US president’s recent remarks on the security treaty between Washington and Tokyo have also caused concern. Donald Trump stressed that the US should provide security for Japan, while Japan should not assume the same responsibility for the US. In a passing remark, President Trump suggested that Japan was making a fortune off the US. This statement suggests the possibility of renegotiating trade relations.
Weekly USDJPY Trading Plan
The imposition of import tariffs by the White House will severely hurt Japan and its currency, but as long as this has not happened and will not happen until at least early April, the USDJPY pair will continue to decline. The first target of 147.5 has been reached, and the pair is about to hit the second one at 145. Against this backdrop, short trades can be opened on upward pullbacks.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of USDJPY in real time mode
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