Japanese Yen Outlook:
- The Japanese Yen[1] has fallen versus the US Dollar[2] since late August despite the Fed’s balance sheet expansion
- Consequently, USD/JPY[3] surpassed trendline resistance from 2018 which may now provide support
- AUD/JPY[4] has also rallied, but failed to post a higher-high like USD[5]/JPY which may leave the door open for bearish opportunities
USD/JPY Forecast
The Japanese Yen has faltered against the US Dollar in recent weeks, even as the Fed has expanded its balance sheet, flushing more Dollars into the economy. Despite the seemingly bearish headwind for the Greenback, a period of subdued volatility and robust risk appetite has helped to lift USD/JPY to its highest level since May 2019. In turn, the pair has broken a descending trendline dating to October 2018, a development that could allow for an extension higher – or an early area of support if risk aversion should emerge.
That being said, the week ahead possesses the potential to spark such an emergence. Among a collection of other Yen crosses, USD/JPY and AUD[6]/JPY have seen their implied volatilities wilt to near record lows [7]– which has likely played a role in the Yen’s weakness – but the upcoming trade deal signing between the United States and China could usher in a fresh regime of volatility.
After negotiating for months, the two sides were seemingly unable to agree on many matters until the surprise announcement was made in mid-December that the two sides had come to a Phase One agreement. Since then, risk assets like the S&P 500 and Dow Jones[8] have surged, while volatility – via the VIX – and the Yen have been pressured. Therefore,
