Japanese Yen Fundamental Forecast – Q1, 2021

• The Japanese Yen is without much love heading into 2021
• Global stimulus eroding market volatility, boosting stocks
• Risks to watch in Q1: Senate runoffs, evictions, Covid cases

The anti-risk Japanese Yen, much like the haven-linked US Dollar, heads into the new year without much love despite the holidays. But, it was not always like that. A norm-breaking year thanks to the coronavirus pandemic upended financial markets initially, increasing demand for the currency (FXY, UDN).

But, global coordination between central banks and governments to inject stimulus into economies cooled market volatility. This sent equities in parts of the world, from the United States to India, to record highs. With the Fed, ECB and BoJ December rate decisions, their asset purchase programs are here to stay.

This leaves the Japanese Yen in a vulnerable position, particularly against growth-linked currencies like the Australian Dollar, New Zealand Dollar and Canadian Dollar. Markets however do not move in a straight line, and there are risks that traders ought to watch out for during the first quarter. (FXA, FXC)

The two Senate runoffs in Georgia will determine the composition of the upper chamber of Congress. About 7-14 million US households face eviction notices unless policymakers extend a federal ban on them. Meanwhile, Covid cases are creeping higher as the world begins its vaccination journey.

Majors-based Japanese Yen Index Versus Wall Street Index

Majors-Based Yen index daily chart created using TradingView