The USD/JPY pair has been a topic of concern among traders and investors since the COVID-19 pandemic hit the world. The pair saw a steep decline, hitting multi-year lows due to the economic uncertainty brought by the pandemic. However, economists at MUFG Bank believe that the pair will stabilize around the 130.00 level as systemic banking fears ease. In this article, we will discuss why the economists at MUFG Bank predict that the USD/JPY pair will stabilize and what factors contribute to their prediction.
Reasons for the Stabilization of USD/JPY:
The USD/JPY pair has been heavily influenced by the global economic and political situation. Since the outbreak of the pandemic, the global economy has been in a state of flux. The stock markets have been volatile, and there has been a lot of uncertainty in the financial markets. This has led to the devaluation of the US dollar, which in turn has caused the USD/JPY pair to decline.
However, as the global economy starts to recover and the pandemic situation eases, the systemic banking fears that have been impacting the pair are expected to subside. This means that there will be less uncertainty in the financial markets, leading to a stabilization of the pair.
The Role of Monetary Policy:
Another factor that contributes to the predicted stabilization of the USD/JPY pair is the role of monetary policy. The Federal Reserve’s decision to keep interest rates low has led to a weaker US dollar. In contrast, the Bank of Japan has kept interest rates at zero, which has led to a stronger yen. This divergence in monetary policy has contributed to the decline of the USD/JPY pair.
However, as the US economy recovers and inflation starts to rise, the Federal Reserve is likely to increase interest rates. This will strengthen the US dollar and lead to a stabilization of the pair. Additionally, the Bank of Japan is also expected to tighten its monetary policy in the future, which will lead to a stronger yen. This convergence in monetary policy will also contribute to the stabilization of the pair.
The Role of Economic Data:
The economic data released by the US and Japan also plays a significant role in the movement of the USD/JPY pair. Strong economic data from the US leads to a stronger US dollar, while strong economic data from Japan leads to a stronger yen.
As the global economy recovers, both the US and Japan are expected to release strong economic data. This will lead to a convergence of economic data and contribute to the stabilization of the pair.
The USD/JPY pair has been on a decline for some time now, but the economists at MUFG Bank predict that it will stabilize around the 130.00 level. The predicted stabilization is due to the easing of systemic banking fears, convergence in monetary policy, and convergence of economic data.