ING's latest report on the USD/JPY forecast includes both short and long-term predictions for the currency. In this article, we will discuss some of the key points in the report and see how they might influence your own trading decisions.
It is often hard to predict the direction of the dollar versus the Japanese yen. But there are a number of factors that will influence the pair's short and long-term future. For example, the Bank of Japan's interest rate policies could affect the yen. The Bank of Japan has a reputation for controlling interest rates. In May, it announced a plan to keep short-term rates very low, while raising them for longer
horizons. This triggered a rally in the yen. However, the yen is likely to remain weak for the foreseeable future.
While the BoJ's monetary policy has encouraged a strong JPY, it could also be encouraging short positions. Analysts at ING expect the dollar to continue to outperform the yen in the near-term. They predict that the USD/JPY will remain in a
range of 140-145 for the rest of the year. They believe that the yen will continue to fall to 130 by the end of 2023.
There are many reasons why the USD/JPY has risen this year. One of them is the expectation that the US economy will continue to outpace the euro area in the next few years. In addition, the Fed has been aggressively raising interest rates to reduce
inflation. As a result, yen-funding currencies have been weakened. Another factor driving the yen's decline is the Bank of Japan's intervention. Over the last three days, the Japanese government has bought around JPY1 trillion. These purchases should keep the market on edge. However, if interest rates rise, the yen could be in for a bumpy ride.
Other factors that will impact the US/JPY pairing are economic developments in Asia. The Japanese yen is heavily involved in trading across several Asian markets. If global equities begin to fall, it may be hard for the currency to maintain its support level. A sharp drop in equity prices would lead to rapid losses for the USD/JPY. Finally, US monetary policy is important to the USD/JPY. With the Fed's policy of “quantitative easing” in place, the US has become an attractive destination for capital, especially when hedged against currency risk.
Although the USD/JPY is likely to continue to outperform the yen, it is worth paying attention to interest rate trends in Japan. In particular, the 10-year treasury yield has risen since the beginning of the year. Speculation of higher JGB rates could spill over into the global bond market in the coming months.
Considering all these factors, it's easy to see why the yen has weakened so much in the last few months. Even though the dollar has strengthened, the yen's value remains at an all-time low. Therefore, the next few weeks will be important for the yen's fortunes.
The key question to ask is whether the yen will reverse its trend and fall back to its previous levels. According to ING, it is possible, but only for a few years.
ING's long-term USD/JPY forecast
ING's long-term USD/JPY forecast is for the yen to weaken against the Dollar in the next couple of years. This is because the US economy is on track to outpace Japan's growth by 2021. That means the Japanese yen will be unable to provide as much
support as it did during the previous two years.
ING's long-term USD/JPY outlook also takes into account the potential for the Bank of Japan to move away from its YCC policy, which has kept interest rates negative for a variety of reasons. Despite that, the Japanese authorities will still need to implement policies to keep the yen from gaining support.
The yen has been declining against the dollar since early in the year. With the US Federal Reserve raising its main interest rate, the Japanese currency has been dragged lower as well. Fortunately, the yen's decline is expected to slow in the months to come. Still, there are plenty of reasons to be cautious about the Japanese currency.
For example, a sharp fall in equity markets could drag US yields downward. This could mean the USD/JPY pair loses substantial value. Likewise, a lack of confidence in the dollar may cause investors to seek out other investments. It is important to note that the USD/JPY pair's short-term trading opportunities will depend on US bond yields, the Federal Reserve, and broader market risk sentiment. Additionally, it is also crucial to monitor Japanese interest rates.
The Bank of Japan has continued its monetary easing program this year, keeping its benchmark rate ultra-low. However, the MoF's intervention in the market has had little impact on the yen's downward trend. ING Economics expects the BoJ to continue its monetary easing efforts through 2023, but only if inflation is still below the 1% target set by the Fed.
Similarly, Goldman Sachs Group Inc. and Citibank are both lowering their yen expectations. These analysts see the dollar-yen trading at 145 by the end of the year, a level that extends a 24-year low.
The yen is not a safe haven for investors, however. It has been losing more than a fifth of its value against the dollar in the past year. In addition, the currency has been on track for its worst annual decline. While the risk appetite remains high, the
yen has been weakened by factors beyond its control.
The USD/JPY pair is currently ranging between 140 and 145, a range that should not be underestimated. Traders should remain alert for the FOMC policy meeting on December 13-14. Depending on the outcome, this will set the tone for the next leg of the directional move. If US and Japanese bond yields start to move upward, the pair should take some momentum from this.
Overall, ING's long-term USD/JPY projection is for a 5% drop in the Japanese currency by 2023. While a steep decline in the Dollar could lead to a rapid decline in the yen, the pair is likely to see moderate losses in the coming year.
ING's short-term USD/JPY forecast
ING's short-term USD/JPY forecast predicts that the Japanese yen will weaken against the dollar. The currency has been on a strong decline since hitting a 24-year low earlier this year. Although this decline could be a temporary reversal, the currency is still at risk.
ING's short-term USD/JPY predictions are based on several factors, including the Fed's policy of aggressively raising interest rates. It is expected that the Fed will continue to do so, but it is also possible that the Fed will cut rates to bring inflation under control. This would put the US Dollar on a more favorable investment path. ING's economists believe that the dollar will make a comeback to highs in the near future. While it is too early to tell whether this is true, the forecast does suggest that the Fed will slow its aggressive rate hikes.
ING's analysts also predict that the euro and pound will struggle to outperform the US Dollar in the near future. In particular, the Euro is susceptible to energy fears, and the UK is still vulnerable to foreign capital outflows. Even though the currency is at parity, there is a risk that it will fall to 1.10.
ING's researchers also expect a tightening of monetary policies in Europe and Japan. They anticipate that Euro-Dollar pairs will trade around parity in the next six months, while the yen will continue to decline. The US Dollar is favored by traders who use the pair as a safe haven. However, the currency is also highly volatile, and the cost of living in the United States remains high. Therefore, it is vital to pay attention to other economic factors.
The yen has been in the spotlight recently as the Bank of Japan (BoJ) announced a surprise change in its yield curve control policy. Previously, the BoJ had been aggressively easing its benchmark rate. Now, the BoJ will continue its aggressive monetary policy, but it has set a more modest target for its 10-year rate.
ING's researchers expect the yen to weaken against the US dollar by the end of this year. However, it is not expected to drop below 130 yen to the dollar. This is due to the wide gap between the two economies' interest rates. Additionally, the yen is heavily involved in trading in Asian markets. Traders should keep a close eye on the yen's performance in the region, as it can help them make smart trading decisions.
The Bank of Japan's aggressive policy of lowering interest rates will eventually have
an impact on the yen. Despite the fact that the MoF has taken measures to control
the currency, the effect has not been enough to alter the yen's downward trend.
ING's research also predicts that the US economy will expand. Although the US
Consumer Price Index reported a 6.2% inflation surge, it will not be enough to quell
the Fed's interest rate hikes.