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Yen plays on the nerves of the White House

The "hawkish" rhetoric of the Fed representatives, the expectation of the publication of the minutes of the last FOMC meeting, the increase in the yield of US Treasury bonds and the increase of the probability of a monetary restriction in March to 22% were not particularly impressive for the "bears" for USD / JPY. The yen reacted rather nervously to the calls of US Treasury Secretary Steve Munchina to the IMF to carefully study issues related to competitive devaluation.

The new administration of the White House is preparing a package of sanctions for countries that will receive a mark of a currency manipulator, and the World Bank warns about the threat associated with protectionism. As in such favorable conditions, do not grow assets - saving harbors?

 

According to a World Bank study, world trade has slowed to + 1.9% y / y in 2016, the weakest indicator in seven years. Brexit and the presidential elections in the United States contributed to the fact that political uncertainty subtracted 0.8 pp from world GDP. In 2017, everything can become even worse, because the risks of protectionism are significantly amplified, which is fraught with a rupture of foreign economic relations and a slowdown in the world economy. It seems that the World Bank is not so optimistic about prospects as at the beginning of the year, when together with the IMF and OECD raised forecasts for global GDP.

 

Although the meeting between Shinzo Abe and Donald Trump passed without excesses, many continue to believe that the higher the USD / JPY quotes rise, the greater Tokyo's chances of provoking the angry rhetoric of the White House. According to the former member of the Board of Governors BoJ Sayuri Shirai, the dollar will not be allowed to rise above 125 yen. And in general, its equilibrium rate is in the region of 100-110 yen. Curiously, the last poll of experts from Reuters gave a median estimate of the pair in 12 months at level 120, while the number of supporters of the expansion of the stimulus package among specialists is steadily falling. In December, 21 people voted in favor of this scenario, in January - 18, in February - 17. On the contrary, the number of followers of the idea of ​​folding QE increases (10, 12 and 15). "Bulls" for "Japanese" lose their trump cards, but experts continue to put on the growth of USD / JPY. Something is wrong here.

 

In fact, the dollar can go down by 120, and by 100 yen. It's all about timing. On the horizon of three to six weeks, publicizing the fiscal stimulus program in the US and increasing the risks of tightening monetary policy of the Fed can push the USD / JPY quotations up. Nevertheless, the European elections, the red tape with the ideas of Donald Trump through Congress, as well as rumors about the limited capacity of BoJ in the field of asset purchases (the share of the central bank in the debt market of the Land of the Rising Sun has increased from 14% since the QE stratum to more than 40%). Will promote sales.

 

Dynamics of the share of the debt market of Japan, owned by BoJ

yen2

 

In this regard, I predict that the analyzed pair within the next three to four months will prefer consolidation in the range of 111-117 yen per dollar. In this case, the drop in quotes in the direction of its lower limit makes sense to use for purchases.