With March coming to an end and the Japanese Yen retracing from multi-year highs at 96.65 to trade at currently 94.00 zone, investors are expecting on what's going on with the Yen. Market is focused on the 100.00 if we speak about the USD/JPY, but what we can really expect from the Nipon currencies in the middle term? Adam Narczewski, XTB Hungary's Director share with the FXstreet.com community his Yen Forecast for the middle and long term.
The Japanese Yen – Saving the economy with a weaker currency…
The recent years have been hard for the Japanese economy. For various reasons (disastrous earthquake, local patriotism for national bonds or treatment as a “safe-heaven” asset) the Yen has been appreciating, which for the struggling economy was a strong blow. The Yen appreciation accelerated after the global financial crisis started and since then authorities have taken various measures to depreciate the value of the local currency.
Currency interventions have not worked well (providing only temporary results) but recently the Bank of Japan (BoJ) has taken a stronger stance – it announced an unlimited asset repurchase program, which is expected to start in January of 2014. Why only “expected”? There are rumors that the BoJ, on its first monetary policy meeting with the new Governor, will actually introduce the program next week. A weaker Yen should help the Japanese export, on which the economy depends a lot.
On the other hand, much will depend on the economic situation in China. Slower economic growth in the largest Asian economy would certainly hit Japan and even a weaker Yen would not be of help. During the second half of 2012, Japanese growth declined substantially in y/y terms and the GDP deflator is still negative, around -1%. If China can sustain a growth rate at around 7% and avoids a hard landing, Japanese GDP growth rate should increase to 1-2% in the second half of the year and deflator should approach 0%. Taking all this factors into account, I expect a steady Yen depreciation throughout this year till the year 2015, with a corrective movement during the second quarter of this year. The year-end, long-term targets for the JPY currency pairs are as follows:
- USD/JPY: 97.00 (2013), 100.00 (2014) and 110.00 (2015).
- EUR/JPY: 121.25 (2013), 120.00 (2014) and 143.00 (2015)
- GBP/JPY: 141.00 (2013), 139.50 (2014) and 160.00 (2015).
How does the situation looks on the charts and what to expect in a shorter-term horizon:
USD/JPY, W1 – the pair has probably finished the recent upward trend, which consists of five sub waves (i-v), which are part of a larger wave (3/C) . According to the Elliott Wave Theory, after a five wave structure, we should expect a larger corrective movement. The blue line, which is drawn by the lows of wave “ii” and “iv” is crucial. If broken, the bears may take control and push the market to the recent low at 90,85 level (as a larger wave 4). Resistance is set by the 96,60 level, where is a significant Fibonacci expansion measured by the length of wave “i” – 161,8% is one of the targets for a fifth wave.
Pic.1 USDJPY W1 source: Metatrader
EUR/JPY, D1 – a potential symmetrical triangle pattern is being observed on the daily chart of EUR/JPY currency pair. This kind of pattern is usually favorable for those who expect the trend to goes on. Currently the pair at the lower limit of the structure with support also at 61,8% of a previous decline. If the mentioned levels are not broken, the bulls should lead to a breakout of the upper limit of the formation and rises above 125,93, 127,50 levels. But if the bears defeat the lower limit of the triangle, then next target for downward movement is located at local bottom 118,80 and at the equality to previous decline (FE100%) 117,06.
Pic.2 EURJPY D1 source: Metatrader
GBP/JPY, D1 – On the daily chart we can observe a head and shoulders pattern with right shoulder probably being created now. The resistance is set by a left shoulder 144,74 and the market is still under that level. That makes good opportunity for the bears to push the pair lower. The nearest target can be set by the recent low 137,87 and by a neck line from the H&S pattern (dashed blue line).Mentioned above scenario will be negated, when the market rises above 147,92 level.
Pic.3 GBPJPY D1 source: Metatrader