USD/JPY Weekly Forecast: Following the yield curve
Premium|Take advantage of 50% OFF on your first month.
50% OFF and access to ALL our articles and insights.
You have reached your limit of 5 free articles for this month.
Take advantage of the Special Price just for today!
50% OFF and access to ALL our articles and insights.
Subscribe to Premium- US Treasury rates drive USD/JPY higher, stall in mid-week, then revive on Friday.
- USD/JPY closes at 10-month high on Monday, repeats on Friday.
- Treasury rates keyed on stronger US data and stimulus expectations.
- Fed economic and rate projections could confirm US GDP potential.
- FXStreet Forecast Poll sees overbought conditions in the medium term.
In real estate the mantra is location, location location. For currencies it is, or should be, rates, rates, rates. Over the pandemic year the importance of yields for currency valuation has been obscured then ignored. But like a suppressed urge, the more you deny it the stronger it gets.
The USD/JPY is up 3.8% since February 22 and consolidated those gains this week. It was the timing of the moves as much as the direction that was most instructive. The upward momentum was strongest on Monday, Tuesday and Friday, the days when the US Treasury rates, specifically the 10-year were at their most buoyant.
Monday's nine-month high at 108.94 coincided with the 10-year yield reaching 1.613% and finishing at 1.594%. Tuesday's spike to 109.24 traded with the open at 1.592% and peak at 1.608%, before following the yield lower. The rate finished at 1.545% and the USD/JPY closed at 108.50. Wednesday's $38 billion 10-year auction failed to move rates higher as had been anticipated. The auction average was 1.523% and the bond finished at 1.520% for the day with the USD/JPY ending at 108.38. Thursday marked time for the yield at 1.527% and the currency pair at 108.57. Friday saw the yield surge eleven basis points to 1.635% (10:30 am EST) with the USD/JPY at 109.12.
CNBC
As important as the actual rate increase has been the Federal Reserve acknowledgment that the US economy can handle higher yields without penalizing growth. With the Fed bond purchase program pinning the short end of the Treasury curve, markets needed assurance that the central bank does not view the the steepening as cause for intervention.
The anticipation for the 10-year Treasury auction had been predicated on inflation expectations. January's Producer Price Index had jumped 1.2%, doubling the annual rate to 1.7% from 0.8%. With the federal government incurring trillion dollar plus deficits annually, a $1.9 trillion addition just enacted and an expected growth and demand surge ahead, the classic conditions for a inflation spike seem to be in place. In the event, February's CPI results, which arrived before the auction, were slightly weaker than forecast and took much of the wind from the bond market sails.
Other US statistics this week were positive. Jobless claims moved to the lower edge of the pandemic range but had no market impact. Consumer sentiment rebounded in March but it remains far from its pre-pandemic range.
Japanese statistics were mixed. Business sentiment in January and February was much more positive than anticipated even if fourth quarter GDP was a bit softer than forecast. The consumer remains straitened. Annual household spending in January dropped almost three times as much as anticipated and has fallen in four of the last six months.
USD/JPY Outlook
The sharp reversal in the USD/JPY pandemic trend is empirical. American economic data has improved. With another vast stimulus package now law, and the pandemic ending, the economic growth potential is for the US economy is very strong. The Atlanta Fed GDPNow track for the first quarter is 8.4% annualized. Treasury yields, which are far from their historical levels, have been main propellant for the USD/JPY. Unless there is a change in circumstances the 10-year yield could be 2% in relatively short order. The USD/JPY will accompany rising US interest rates.
The Federal Reserve meeting on March 16 and 17 is the main event in the coming week. There will be no policy developments but the first Projection Materials for the year will be issued. Any improvement in the GDP and the unemployment estimates, which is likely, will confirm the positive US economic outlook and a higher USD/JPY. Likewise Retail Sales is a harbinger for economic growth.
Technically the very steep ascent in the past three weeks leaves the USD/JPY vulnerable to profit-taking sales on any statistical disappointment. But with US interest rates in a sustained rise, any USD/JPY decline will swiftly become a buying opportunity. .
Japan statistics March 8-March 12
January and February statistics were a mix of sharply improved business attitudes and weak consumer data.
Monday
January's Coincident Index climbed to 91.7, its best level since February, easily passing the 86.6 forecast and December's 88.2. The Leading Economic Index scored 99.1 in January its highest since September 2018, well ahead of the 94.4 forecast and December's 97.7 reading. The Eco Watchers Survey, Outlook for February rose to 51.3 from 39.9 for its best since September 2018. The forecast was 38.6. The Current Survey climbed to 41.3 in February from 31.2 prior though missing the 43.3 estimate. Labor Cash Earnings (YoY) fell 0.8% in January just over half the -1.7% forecast. The December total was revised to -3% from -3.2%. Overall household Spending (YoY) in January fell 6.1% almost three times the -2.1% estimate and 10 times the December decline of -0.6%. Gross Domestic Product rose 11.7% annualized in the fourth quarter, slightly under the 12.8% estimate and the prior quarter's 12.7% rate. Quarterly GDP gained 2.8% following 3% in the third quarter.
Wednesday
The Producer Price Index rose 0.4% in February on a 0.5% forecast and January result. The annual rate was -0.7%, as forecast, half the December 1.5% drop.
Thursday
BSI large Manufacturing Conditions Index plunged to 1.6 in the first quarter from 21.6 in fourth quarter. The forecast was 25.9.
FXStreet
US statistics March 8-March 12
Inflation or its lack dominated economic information this week. After Monday's 1.613% reach in the 10-year Treasury yield attention turned to February's CPI and the auction of $38 billion that afternoon. Headline CPI was flat as forecast and core fell slightly taking some of the wind from the inflation sails. The auction rate was 1.523%, about where it started. The February PPI, released on Friday settled back to a 0.3% gain after 1.2% in January, which, along with CPI mitigated inflation concerns but did not dampen the yield ascent..
Wednesday
The Consumer Price Index for February rose 0.4% on the month and 1.7% annually as forecast, up from 0.3% and 1.4% in January. The core rate rose 0.1% and 1.3%, missing the 0.2% and 1.4% predictions, higher on the month than January's 0.0% but down from 1.4% on the year. The closely watched auction of $38 billion in 10-year Treasuries produced a 1.523% average rate, two basis points below the prior close at 1.545%.
Thursday
Initial Jobless Claims dropped to 712,000 in the March 5 week from 754,000 prior. It was the lowest weekly total since November 6 at 711,000. Continuing Claims declined to 4.144 million on February 26 from 4.337 million, falling for the eighth week in a row. The JOLTS Job Openings Survey registered 6.917 million positions in January, up from 6.752 million in December, better than the 6.6 million estimate and the highest total since February 2020.
Friday
The Producer Price Index climbed 0.5% in February after soaring 1.3% in January. The annual rate jumped to 2.8% from 1.7%. Core PPI rose 0.2% and 2.5% following January's 1.2% and 2% increases. Michigan Consumer Sentiment climbed to 83 in March from 76.5, ahead of the 78.5 estimate and the highest of the pandemic era.
FXStreet
Japan statistics March 15-March 19
The Bank of Japan policy meeting leads this week. No change is expected in the overnight call rate. An increase in the amount or timing of bond purchases is possible but unlikely. The BOJ governors will probably elect to await the global economic recovery. The Trade Balance and National CPI are the best informants on the state of Japan's economy.
Monday
The Tertiary index for January is expected to be stable at -0.4%. machinery Orders rose 5.2% monthly and 11.8% annually in December.
Tuesday
Revisions to January Industrial Production should leave it unchanged at 4.2% on the month and -5.3% annually. Capacity Utilization was 0.8% in January.
Wednesday
Exports are forecast to rise 6.6% on the year in February after 6.4% in January. Imports are expected to drop 6% in February following a 9.5% decline in January.
Friday
BOJ rate decision, Monetary Policy Statement and Press Conference. No change is expected in either aspect. National CPI is predicted to fall 0.2% (YoY) in February,up from -0.6% in January. National CPI ex-Fresh Food (YoY) is estimated at -0.7% in February after -0.65 and CPI ex Food, Energy (YoY) is expected to be 0.4% in February after 0.1% prior.
FXStreet
US statistics March 15-March 19
Retail Sales for February and the Fed meeting are preeminent. No change in policy is anticipated form the central bank but the recent rise in US Treasury rates is sure to be a topic at Chairman Jerome Powell's news conference. The Fed will release its first set of economic and rate projections for 2021. January Retail Sales produced an unexpected moonshot at 5.3% overall and 6% in the Control Group, a combined factor of six over forecasts. With both categories projected to fall any positive result will point to further gains in March when the latest stimulus check should be ready for spending.
Tuesday
Retail Sales are projected to drop 0.5% in February after soaring 5.3% in January. Sales ex-Autos are expected to slip 0.1%t following a 5.9% jump in January and the Control Group is forecast to be down 1.1% in February subsequent to January's 6% increase. Industrial Production in February should rise 0.6% after 0.9% in January . Capacity Utilization will be little changed at 75.8% after 75.6% in January. Business Inventories in January are predicted to increase 0.3%, half the December gain. The Export Price Index could rise 1.1% in February after a 2.5% increase in January; the Import Price Index is slated for a 1.2% gain following 1.4% in January.
Wednesday
Housing Starts are forecast to drop 0.9% in February to 1.565 million (annualized) after fading 6% to 1.58 million in January. Building Permits may drop 7.2% in February to 1.75 million after the 10.7% jump to 1.886 million in January. The Federal Reserve Open Market committee will leave its policy rate at the 0.25%upper target and bond purchases at $120 billion per month, 2/3 in Treasuries and the balance in mortgage backed securities. Economic projections are expected to improve while it is anticipated that the rate horizon for the fed funds will be unchanged.
Thursday
Initial Jobless Claims should drop to 705,000 in the March 12 week form 712,000 prior. Continuing Claims should fall to 4.0 million in the March 5 week from 4.144 million previously.
FXStreet
USD/JPY technical outlook
Last Friday's close at 108.35, just shy of the 61.8% Fibonacci at 108.42 of the complete eleven-month pandemic decline, was emblematic of the change of fortune in the USD/JPY. After gaining 1.7% on the week and 3.1% in two, the level was a natural pause, particularly on a Friday in New York, the last market. At resumption on Monday there was no profit-taking, a normal occurance at this retracement following such a rapid move. The ascent simply resumed.
Technical considerations have been secondary or non-existant in this entire move because the logic is fundamental. The US economy is poised for a powerful recovery. Interest rates are normalizing and the Federal Reserve intends to let them do so.That does not mean that technical levels are unimportant only that their price action logic cannot compete with the undelying interest rate change.
American Treasury rates are still well beneath their recent ranges. The 10-year yield was above 2% from November 2016 to July 2019 and there is yet substantial upward potential for Treasury rates. Even though the Fed is repressing the short end of the yield curve, it too will move higher as soon as the governors permit.
The USD/JPY will follow US interest rates higher. Technical levels impinge when the rate motive is weak. The cross of the 61.8% Fibonacci on Monday is an example. As the 10-year yield moved between 1.6% and 1.52%, 108.42 became the base.
The Relative Strength Index at 77.06 is overbought but its normal sell signal at this level is contingent on the direction of US interest rates. Of the moving averages only the 21-day at 106.77 forms current support. The 100-day at 104.68 and the 200-day at 105.50 are distant.
Resistance: 109.20, 109.65, 110.00, 110.35
Support: 108.42 (61.8% F), 108.00, 107.55, 107.00, 106.60, 106.22 (38.2% F)
USD/JPY Forecast Poll
The FXStreet Forecast Poll takes a technical view of the USD/JPY. After the nearly verticle climb of the last two weeks, a fall to the prior range of 105.00-106 where the USD/JPY traded for most of February, might be a likely technical development. However, this fails to incorporate the fundamental differential of rising US interest rates which alter the long-term dynamic between the yen and the dollar in the US currency's favor.
- US Treasury rates drive USD/JPY higher, stall in mid-week, then revive on Friday.
- USD/JPY closes at 10-month high on Monday, repeats on Friday.
- Treasury rates keyed on stronger US data and stimulus expectations.
- Fed economic and rate projections could confirm US GDP potential.
- FXStreet Forecast Poll sees overbought conditions in the medium term.
In real estate the mantra is location, location location. For currencies it is, or should be, rates, rates, rates. Over the pandemic year the importance of yields for currency valuation has been obscured then ignored. But like a suppressed urge, the more you deny it the stronger it gets.
The USD/JPY is up 3.8% since February 22 and consolidated those gains this week. It was the timing of the moves as much as the direction that was most instructive. The upward momentum was strongest on Monday, Tuesday and Friday, the days when the US Treasury rates, specifically the 10-year were at their most buoyant.
Monday's nine-month high at 108.94 coincided with the 10-year yield reaching 1.613% and finishing at 1.594%. Tuesday's spike to 109.24 traded with the open at 1.592% and peak at 1.608%, before following the yield lower. The rate finished at 1.545% and the USD/JPY closed at 108.50. Wednesday's $38 billion 10-year auction failed to move rates higher as had been anticipated. The auction average was 1.523% and the bond finished at 1.520% for the day with the USD/JPY ending at 108.38. Thursday marked time for the yield at 1.527% and the currency pair at 108.57. Friday saw the yield surge eleven basis points to 1.635% (10:30 am EST) with the USD/JPY at 109.12.
CNBC
As important as the actual rate increase has been the Federal Reserve acknowledgment that the US economy can handle higher yields without penalizing growth. With the Fed bond purchase program pinning the short end of the Treasury curve, markets needed assurance that the central bank does not view the the steepening as cause for intervention.
The anticipation for the 10-year Treasury auction had been predicated on inflation expectations. January's Producer Price Index had jumped 1.2%, doubling the annual rate to 1.7% from 0.8%. With the federal government incurring trillion dollar plus deficits annually, a $1.9 trillion addition just enacted and an expected growth and demand surge ahead, the classic conditions for a inflation spike seem to be in place. In the event, February's CPI results, which arrived before the auction, were slightly weaker than forecast and took much of the wind from the bond market sails.
Other US statistics this week were positive. Jobless claims moved to the lower edge of the pandemic range but had no market impact. Consumer sentiment rebounded in March but it remains far from its pre-pandemic range.
Japanese statistics were mixed. Business sentiment in January and February was much more positive than anticipated even if fourth quarter GDP was a bit softer than forecast. The consumer remains straitened. Annual household spending in January dropped almost three times as much as anticipated and has fallen in four of the last six months.
USD/JPY Outlook
The sharp reversal in the USD/JPY pandemic trend is empirical. American economic data has improved. With another vast stimulus package now law, and the pandemic ending, the economic growth potential is for the US economy is very strong. The Atlanta Fed GDPNow track for the first quarter is 8.4% annualized. Treasury yields, which are far from their historical levels, have been main propellant for the USD/JPY. Unless there is a change in circumstances the 10-year yield could be 2% in relatively short order. The USD/JPY will accompany rising US interest rates.
The Federal Reserve meeting on March 16 and 17 is the main event in the coming week. There will be no policy developments but the first Projection Materials for the year will be issued. Any improvement in the GDP and the unemployment estimates, which is likely, will confirm the positive US economic outlook and a higher USD/JPY. Likewise Retail Sales is a harbinger for economic growth.
Technically the very steep ascent in the past three weeks leaves the USD/JPY vulnerable to profit-taking sales on any statistical disappointment. But with US interest rates in a sustained rise, any USD/JPY decline will swiftly become a buying opportunity. .
Japan statistics March 8-March 12
January and February statistics were a mix of sharply improved business attitudes and weak consumer data.
Monday
January's Coincident Index climbed to 91.7, its best level since February, easily passing the 86.6 forecast and December's 88.2. The Leading Economic Index scored 99.1 in January its highest since September 2018, well ahead of the 94.4 forecast and December's 97.7 reading. The Eco Watchers Survey, Outlook for February rose to 51.3 from 39.9 for its best since September 2018. The forecast was 38.6. The Current Survey climbed to 41.3 in February from 31.2 prior though missing the 43.3 estimate. Labor Cash Earnings (YoY) fell 0.8% in January just over half the -1.7% forecast. The December total was revised to -3% from -3.2%. Overall household Spending (YoY) in January fell 6.1% almost three times the -2.1% estimate and 10 times the December decline of -0.6%. Gross Domestic Product rose 11.7% annualized in the fourth quarter, slightly under the 12.8% estimate and the prior quarter's 12.7% rate. Quarterly GDP gained 2.8% following 3% in the third quarter.
Wednesday
The Producer Price Index rose 0.4% in February on a 0.5% forecast and January result. The annual rate was -0.7%, as forecast, half the December 1.5% drop.
Thursday
BSI large Manufacturing Conditions Index plunged to 1.6 in the first quarter from 21.6 in fourth quarter. The forecast was 25.9.
FXStreet
US statistics March 8-March 12
Inflation or its lack dominated economic information this week. After Monday's 1.613% reach in the 10-year Treasury yield attention turned to February's CPI and the auction of $38 billion that afternoon. Headline CPI was flat as forecast and core fell slightly taking some of the wind from the inflation sails. The auction rate was 1.523%, about where it started. The February PPI, released on Friday settled back to a 0.3% gain after 1.2% in January, which, along with CPI mitigated inflation concerns but did not dampen the yield ascent..
Wednesday
The Consumer Price Index for February rose 0.4% on the month and 1.7% annually as forecast, up from 0.3% and 1.4% in January. The core rate rose 0.1% and 1.3%, missing the 0.2% and 1.4% predictions, higher on the month than January's 0.0% but down from 1.4% on the year. The closely watched auction of $38 billion in 10-year Treasuries produced a 1.523% average rate, two basis points below the prior close at 1.545%.
Thursday
Initial Jobless Claims dropped to 712,000 in the March 5 week from 754,000 prior. It was the lowest weekly total since November 6 at 711,000. Continuing Claims declined to 4.144 million on February 26 from 4.337 million, falling for the eighth week in a row. The JOLTS Job Openings Survey registered 6.917 million positions in January, up from 6.752 million in December, better than the 6.6 million estimate and the highest total since February 2020.
Friday
The Producer Price Index climbed 0.5% in February after soaring 1.3% in January. The annual rate jumped to 2.8% from 1.7%. Core PPI rose 0.2% and 2.5% following January's 1.2% and 2% increases. Michigan Consumer Sentiment climbed to 83 in March from 76.5, ahead of the 78.5 estimate and the highest of the pandemic era.
FXStreet
Japan statistics March 15-March 19
The Bank of Japan policy meeting leads this week. No change is expected in the overnight call rate. An increase in the amount or timing of bond purchases is possible but unlikely. The BOJ governors will probably elect to await the global economic recovery. The Trade Balance and National CPI are the best informants on the state of Japan's economy.
Monday
The Tertiary index for January is expected to be stable at -0.4%. machinery Orders rose 5.2% monthly and 11.8% annually in December.
Tuesday
Revisions to January Industrial Production should leave it unchanged at 4.2% on the month and -5.3% annually. Capacity Utilization was 0.8% in January.
Wednesday
Exports are forecast to rise 6.6% on the year in February after 6.4% in January. Imports are expected to drop 6% in February following a 9.5% decline in January.
Friday
BOJ rate decision, Monetary Policy Statement and Press Conference. No change is expected in either aspect. National CPI is predicted to fall 0.2% (YoY) in February,up from -0.6% in January. National CPI ex-Fresh Food (YoY) is estimated at -0.7% in February after -0.65 and CPI ex Food, Energy (YoY) is expected to be 0.4% in February after 0.1% prior.
FXStreet
US statistics March 15-March 19
Retail Sales for February and the Fed meeting are preeminent. No change in policy is anticipated form the central bank but the recent rise in US Treasury rates is sure to be a topic at Chairman Jerome Powell's news conference. The Fed will release its first set of economic and rate projections for 2021. January Retail Sales produced an unexpected moonshot at 5.3% overall and 6% in the Control Group, a combined factor of six over forecasts. With both categories projected to fall any positive result will point to further gains in March when the latest stimulus check should be ready for spending.
Tuesday
Retail Sales are projected to drop 0.5% in February after soaring 5.3% in January. Sales ex-Autos are expected to slip 0.1%t following a 5.9% jump in January and the Control Group is forecast to be down 1.1% in February subsequent to January's 6% increase. Industrial Production in February should rise 0.6% after 0.9% in January . Capacity Utilization will be little changed at 75.8% after 75.6% in January. Business Inventories in January are predicted to increase 0.3%, half the December gain. The Export Price Index could rise 1.1% in February after a 2.5% increase in January; the Import Price Index is slated for a 1.2% gain following 1.4% in January.
Wednesday
Housing Starts are forecast to drop 0.9% in February to 1.565 million (annualized) after fading 6% to 1.58 million in January. Building Permits may drop 7.2% in February to 1.75 million after the 10.7% jump to 1.886 million in January. The Federal Reserve Open Market committee will leave its policy rate at the 0.25%upper target and bond purchases at $120 billion per month, 2/3 in Treasuries and the balance in mortgage backed securities. Economic projections are expected to improve while it is anticipated that the rate horizon for the fed funds will be unchanged.
Thursday
Initial Jobless Claims should drop to 705,000 in the March 12 week form 712,000 prior. Continuing Claims should fall to 4.0 million in the March 5 week from 4.144 million previously.
FXStreet
USD/JPY technical outlook
Last Friday's close at 108.35, just shy of the 61.8% Fibonacci at 108.42 of the complete eleven-month pandemic decline, was emblematic of the change of fortune in the USD/JPY. After gaining 1.7% on the week and 3.1% in two, the level was a natural pause, particularly on a Friday in New York, the last market. At resumption on Monday there was no profit-taking, a normal occurance at this retracement following such a rapid move. The ascent simply resumed.
Technical considerations have been secondary or non-existant in this entire move because the logic is fundamental. The US economy is poised for a powerful recovery. Interest rates are normalizing and the Federal Reserve intends to let them do so.That does not mean that technical levels are unimportant only that their price action logic cannot compete with the undelying interest rate change.
American Treasury rates are still well beneath their recent ranges. The 10-year yield was above 2% from November 2016 to July 2019 and there is yet substantial upward potential for Treasury rates. Even though the Fed is repressing the short end of the yield curve, it too will move higher as soon as the governors permit.
The USD/JPY will follow US interest rates higher. Technical levels impinge when the rate motive is weak. The cross of the 61.8% Fibonacci on Monday is an example. As the 10-year yield moved between 1.6% and 1.52%, 108.42 became the base.
The Relative Strength Index at 77.06 is overbought but its normal sell signal at this level is contingent on the direction of US interest rates. Of the moving averages only the 21-day at 106.77 forms current support. The 100-day at 104.68 and the 200-day at 105.50 are distant.
Resistance: 109.20, 109.65, 110.00, 110.35
Support: 108.42 (61.8% F), 108.00, 107.55, 107.00, 106.60, 106.22 (38.2% F)
USD/JPY Forecast Poll
The FXStreet Forecast Poll takes a technical view of the USD/JPY. After the nearly verticle climb of the last two weeks, a fall to the prior range of 105.00-106 where the USD/JPY traded for most of February, might be a likely technical development. However, this fails to incorporate the fundamental differential of rising US interest rates which alter the long-term dynamic between the yen and the dollar in the US currency's favor.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.