Last year was a bit of a static period for the USD/JPY pair as it started and ended 2019 at roughly the same rate of 108, despite the occasional fluctuations in both directions in between. The year was dominated by the trade tensions between the US and China, with the JPY serving as a safe haven.
However, the headlines have recently changed, with the trade talks being abruptly overweight by the coronavirus outbreak spreading across the world. With a shift in global dynamics, the pair has already reached its 10-month high of 111.95 on February 21, 2020, right before dropping as low as 103.10 on March 10.
Witnessing the latest market turbulence creeping up on international investors, many are now wondering what currency pairs they should choose to invest in 2020.
To help you better navigate the forex market, in this article, we cover the basics of the USD/JPY pair, check out what factors influence its rate, review its recent performance and take a look at the analysts’ USD/JPY expectations for 2020 and beyond.
The basics: everything you need to know about the USD/JPY pair
In case if you are new to the forex market, there are a couple of things you should know about this currency pair before investing your cash in it.
USD/JPY refers to the currency pairing of the US dollar against the Japanese yen. It is an abbreviation that denotes the currency exchange rate between the two, representing how many Japanese yen – the quote currency – are needed to purchase one US dollar – the base currency.
The USD/JPY pair is popularly nicknamed “Ninja” or “Gopher” and remains the second most traded in the world, representing 13.2 per cent of all daily forex transactions. Thanks to its high trading volume, the pair has a substantial level of liquidity, making it very attractive to all types of trades, both professionals and novices alike.
The prime status of the USD on the global arena boosts up investors’ confidence in the pair. In fact, the US dollar is the most traded currency in the forex market. In 2019, the currency accounted for approximately 88 per cent of all foreign exchange transactions.
The Japanese yen, on the other hand, is well-known for its safe-haven properties. It usually tends to appreciate in value during times of economic and political uncertainty.
There are many factors that have a great impact on the value of the US dollar and the Japanese yen in relation to each other. One of the key drivers of the pair’s rate is the overall health of the US and Japanese economies. Particularly important points to look out for are the countries’ GDP growth figures, employment rates, industrial production, import and export data and inflation. Any developments, both positive and negative, may have a significant influence on the pair’s rates.
Moreover, the USD/JPY pair is affected by the interest rate differential between the Bank of Japan (BOJ) and the US Federal Reserve (Fed). Lower interest rates tend to have a negative effect on the currency, at least in the short term, and vice-versa.
USD/JPY analysis: the pair's price performance over the years
Before looking at the USD to JPY forecast, we have to first recap and understand the performance of the pair over the past few years.
Although the Japanese economy is experiencing a torrid time so far in the 21 century, the yen remains a safe-haven currency that people run to when uncertainty hits the markets. However, it is worth noting that the JPY tends to weaken once the global economy gets back on track and more investors choose to shift their funds to the USD or other strong currency alternatives.
Let's take a look at the dollar/yen trend by checking its historic exchange rates:
Over the past two decades, the USD/JPY pair has experienced a myriad of wild price swings.
It hit its record high of 144.61 in August 1998. At the start of the century, the pair shed more than 25 per cent to trade at 107.33. It then performed exceptionally well in 2003 when it peaked at 133.
The following years were rather torrid for the “Ninja” with its rate falling to 102.8 in December 2004.
When the infamous Great Recession of 2008 shocked the global financial markets, the USD/JPY did face some turbulence. However, unlike the majority of its forex peers, it still managed to stay above the 90 mark for most of the year.
Right after hitting its bottom at the beginning of 2012, the USD quickly gained an upside momentum, marking the start of the pair’s strong uptrend. In May 2015, its rate peaked at 124.
The next significant slip happened in 2016 when the USD was worth around 100 yen. The decline came due to the financial markets becoming frustrated with the delay in the pro-growth Trump administration's policies.
The dollar/yen outlook turned around in 2017 once the US economy started posting strong results and growing at a booming rate, with the US dollar reaping the benefits.
During the 2019 trade war escalation, the yen served as a safe haven, while the optimism behind the US economy kept the Greenback high. The pair has maintained its position well above the 100 mark.
What has been recently happening to the USD/JPY pair?
To have a better understanding of the USD to JPY forecast 2020, it is crucial to know what news has been driving the rates of the pair over the past few weeks.
So far this year, the coronavirus outbreak has affected all the financial markets, including forex. It means the USD/JPY forecast is also likely to be influenced by how the virus plays out in the following months.
The US Fed has already slashed interest rates this year in an attempt to curb the economic effects of the epidemic. The Bank of Japan is also looking to provide liquidity to the market to combat the effects of the virus. For that, it is also important to keep your eyes on the further monetary policy developments from the Fed and BoJ.
Apart from the Covid-19 spread, the successful implementation of the Phase One deal between the US and China could also influence the pair’s rate by pushing the USD higher.
The USD/JPY forecast for the years ahead: what to expect next?
USD/JPY forecast for 2020
2020 has been an interesting one for the financial markets so far. The USD/JPY forecast now depends on the moves made by the BOJ and the US Fed. The two central banks have made moves to cushion the effects of the virus outbreak.
The US economy is expected to slow down to 2.0 per cent this year, down from the 2.2 per cent it recorded last year. Japan could suffer a bigger hit as the cancellation of the Tokyo Olympics could hamper its growth. Already, the economy has declined by 7 per cent this quarter and the fear of recession continues to rise. If that happens, the USD/JPY pair is likely to trade above its current price of 103 for the remainder of the year.
According to Longforecast.com, the USD to JPY forecast for March 2020 could see the Greenback lose points. At the start of the month, the rate stood at 108.06 Japanese yen. However, its USD to JPY forecast suggests that the pair could fall as low as 99.75 by the end of March, with the USD down by -7.7 per cent. In April, the pair is predicted to trade at an average of 96.76.
Based on the USD JPY prediction from Gov Capital, the pair is expected to end this year at 108.919.
Here’s what their USD/JPY forecast for 2020 looks like:
The US election is another major event that could affect the performance of the pair. The markets have taken well to Donald Trump and could perform even better if he comes out victorious by November.
The Democratic Party candidacy is now between senator Bernie Sanders and former vice president Joe Biden. If Biden should get the Democratic ticket and win the election, the market might remain stable as he is considered to be a centrist. However, since Bernie Sanders is a leftist, his victory could hurt the market in the short-term as his policies are something major businesses and investors are against.
In general, the USD/JPY is expected to decline over the next few months. However, things might change if the Japanese economy was actually to fall into recession.
USD/JPY forecast 2021-2023
By November, we will know if Trump retains his seat or not. The outcome of the presidential election could play a role in shaping the performance of the USD/JPY pair by the end of 2020 and the following year.
Longforecast.com predicts the USD/JPY to be down by 2.8 per cent and trade at around 93.85 by February 2021. Over the next four years, the pair’s rate is expected to stay under the 100 level, ending 2023 at 93.93.
So, what is the USD/JPY: buy or sell?
Should you invest in the USD/JPY pairing while it trades a little over 100? Well, just like any other investment, it can give no guarantee of financial success.
Before investing in this forex pair, we suggest you to arm yourself with as much knowledge as possible. Keep an eye on the economic calendar to stay on top of the events that may cause volatility in the pair’s rate.
If you think you are not ready to make long-term investment commitments, but still want to try to profit from the forex volatility, you can do so through contracts for difference (CFD), instead. Find out how to trade USD/JPY CFDs with our comprehensive guide today!
Are you ready to make your own US dollar to Japanese yen forecast? Follow our live chart to always be up-to-date with the pair’s latest performance.
Trade US Dollar / Japanese Yen CFD
Join Capital.com to follow the latest USD/JPY news and market developments to make rational trading decisions.