"He's a bright young talent who we want to keep. I'm sure that the spell at Watford will help with his development.
"Watford play with wingers and they play in the right way, so it should be exactly what Adam needs."
Hornets boss Ade Boothroyd believes Johnson will be a valuable asset to his team as they bid to stay top of the Championship.
He said: "I was pleased with Adam on Sunday. He's a young livewire.
"I inquired about him last season, and Gareth Southgate called me recently to see if I was still interested.
"I'm thrilled to have him here as he'll push Jobi McAnuff and Tommy Smith and will give us further options out wide."