USD/JPY Is Expected To Keep Moving Up To 116.00

Société Générale economists discuss the impact of the USD/JPY pair on the base-case economic forecast (conviction degree of 50%), the positive scenario (25%), and the negative scenario (25%). 

The USD/JPY is expected to trade at 116 in the base case, 118 in the upside scenario, and 110 in the negative scenario.

The Most Likely Scenario For 2Q22 (50% Likelihood):

The USD/JPY rate would be 116. It doesn’t look like the price of oil will be able to help much in the first half of next year. 

In nominal terms, the Yen is back where it was in the mid-1980s, which would seem wild. The rise in commodity prices has had a huge effect on the trade terms. 

The outlook isn’t great, and being the world’s largest foreign trade does not help when the significant deficit countries have too much money in the world. For now, the USD/JPY looks like it will keep going up.

Uptrend Circumstance For 2Q22 (25% Likelihood):

The USD/JPY would be at 118. The largest upside probability for the USD/JPY is that COVID-19 is kept under control thanks to constant improvement in vaccination and the availability of vaccines and drugs.

This could lead to an early rise in oil prices and US bond rates. Besides that, higher US yields and more confidence in Fed rate rises can push the value of the Dollar higher against the Yen.

Potential Losses Situation 2Q22: (25% Likelihood)

USD/JPY would be at 110. A bad outcome would make the Fed think about its policy again, which could lead to lower global growth and lower prices for resources. 

Both would lower USD/JPY, returning it to the 108–112 range it was in between March and September, which is consistent with a 20bp drop in 5-year rates and/or Brent crude easing back into the $65-75/bbl range.

An Overview of the Technical and Fundamental Concepts

USD/JPY CHART Source: Tradinview.com

The USD/JPY pair did not have a strong direction and stayed in a narrow trading range near the mid-113.00s until the European session started.

So far, the pair hasn’t been able to make any real progress, and Friday was the fourth day in a row that it stayed in the same price range.

It was good for the safe-haven Japanese Yen to have a less risky tone, even though there were mixed reports about the Omicron variant of the coronavirus. When the USD/JPY pair went up, this was seen as one of the main things that stopped it.

A rise in the yields on US Treasury bonds is cushioning the downside, but that doesn’t mean things are going to get better. This, along with hawkish expectations from the Fed, helped the US Dollar and the USD/JPY pair. 

Investors also didn’t seem to be willing to make speculative investments. Instead, they stayed on the sidelines until the US consumer inflation report came out.

Markets think that the Fed will tighten its fiscal system soon rather than later to keep inflation from rising too much. They have been predicting that the Fed could start raising interest rates in May 2022. 

When it comes out later this morning in the early North American time zone, it will give investors an idea of what the Fed will do next and how it plans to raise interest rates.

This will have a big impact on the demand for the Dollar and give the USD/JPY pair a boost before the FOMC meeting on December 14-15.

A stronger print will show that the Fed is more likely to raise interest rates in the future. This should give the Greenback a boost and set the stage for some big gains for the major.