Life is changing, and the markets are changing. In Forex, the winners could any time become the losers. What will be with the yen? Let’s find it out and make a trading plan for EURJPY, GBPJPY, and AUDJPY for six months.

Fundamental yen forecast for six months

Donald Trump is leaving the White House, and the age of safe havens is also about to end. The eccentric and unpredictable 45th US president created an environment of uncertainty in the financial markets, which supported the safe-haven assets. Amid the trade wars and the pandemic over the last three years, the Japanese yen has grown 6.4% versus the US dollar, the Swiss franc – by 6.9%. On the opposite side in the list of 30 most traded Forex currencies are the Turkish lira (-99%), the Brazilian real (-68%), and the Russian ruble (-30%). Everything can radically change in 2021.

One of the key drivers for the USDJPY is the capital flows from Japan into the USA and vice versa. Over the six months up to September, overseas stocks’ net sales by Japanese investors totaled ¥3.91 trillion; net purchases of local government debt are of ¥11.8 trillion. Both values are the highest since 2013. During the same period, the dollar was down by 4.5% versus the yen. Furthermore, when the Japanese investors were actively selling the foreign stocks (- ¥ 4.85 trillion on a net basis), the USDJPY was almost 4% down.

Dynamics of net overseas asset purchases by Japanese investors

Source: Bloomberg.

Dynamics of net local asset purchases by Japanese investors

Source: Bloomberg

Although the US stock indexes were rising, Japan’s epidemiological situation was better than in the USA, and there was uncertainty around the US presidential election. As a result, insurance companies, pension funds, and other investors preferred to sell the US stocks and repatriate capitals to Japan, pressing the USDJPY down. In 2021, the Japanese investors should display a higher risk appetite amid Biden’s victory (he will be more predictable than Trump), vaccines, and global GDP recovery. The capital flows should again outflow from Japan, making the yen a Forex outsider.

I do not think there is much use in selling the yen versus the US dollar. First, the greenback is also a safe haven, and the USD outlook is also bearish for 2021. Second, the US economy can well recover sooner than Japan’s growth. The US PMI has shown the best growth since March 2015, while Japan’s PMI remains weak.

Dynamics of Japanese PMI

   

Source: Bloomberg.

Trading plan for EURJPY, GBPJPY, and AUDJPY for six months

It makes sense to sell the yen versus the euro, the pound, and the Australian dollar. A Brexit deal will support the euro and the sterling. If the pandemic is stopped, the EUR and the GBP could repeat the rallies that occurred in the May-August period. China and commodities will support the Aussie. Under such conditions, it seems promising to buy the EURJPY, GBPJPY, and AUDJPY with the targets of 126.4 and 128.5, 142.5 and 144.7, 79.5 and 82.4 in three and six months, respectively.


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