12 Jan 2015
USD/JPY to reach 125 by end-2015 - Nomura
FXStreet (Bali) - USD/JPY should reach 125 by end of 2015, with the appreciation slowing down considerably though, notes Nomura.
Key Quotes
"JPY depreciated against the most G10 currencies in 2014. The depreciation against USD has accelerated since August, breaking 120 in December. We still see upside risks in USD/JPY into 2015-16, although we expect the pace of USD/JPY appreciation to be slower. Our current end-2015 USD/JPY target is 125."
"After three consecutive years of appreciation, USD/JPY is now trading at the highest level since 2007. JPY REER is also now at the weakest level since the early 1980s. Even though JPY is now at a multiple-year low and potentially undervalued, that does not mean we expect JPY to start appreciating automatically any time soon."
"For example, USD/JPY continued to trade below 80 before the regime change in late-2012, even though JPY was judged as overvalued by the IMF and the Japanese government intervened in the market to weaken the currency. We needed to wait for a couple of JPY selling catalysts before JPY started to weaken in 2012, such as deterioration in the trade balance and expectations for aggressive BOJ easing under the new government."
"Nonetheless, as the correction of JPY overvaluation has likely already finished, we need to look carefully at potential factors to stop the appreciation to evaluate the upside room for USD/JPY. We examine four possible factors that could end the JPY weakness: 1) ’ s on USD/JPY, 2) risk of changes in the O’ monetary policy stance, 3) a slowdown in portfolio shifts, and 4) improvement in the trade balance. We judge these factors are still unlikely to change the USD/JPY appreciation trend this year."
Key Quotes
"JPY depreciated against the most G10 currencies in 2014. The depreciation against USD has accelerated since August, breaking 120 in December. We still see upside risks in USD/JPY into 2015-16, although we expect the pace of USD/JPY appreciation to be slower. Our current end-2015 USD/JPY target is 125."
"After three consecutive years of appreciation, USD/JPY is now trading at the highest level since 2007. JPY REER is also now at the weakest level since the early 1980s. Even though JPY is now at a multiple-year low and potentially undervalued, that does not mean we expect JPY to start appreciating automatically any time soon."
"For example, USD/JPY continued to trade below 80 before the regime change in late-2012, even though JPY was judged as overvalued by the IMF and the Japanese government intervened in the market to weaken the currency. We needed to wait for a couple of JPY selling catalysts before JPY started to weaken in 2012, such as deterioration in the trade balance and expectations for aggressive BOJ easing under the new government."
"Nonetheless, as the correction of JPY overvaluation has likely already finished, we need to look carefully at potential factors to stop the appreciation to evaluate the upside room for USD/JPY. We examine four possible factors that could end the JPY weakness: 1) ’ s on USD/JPY, 2) risk of changes in the O’ monetary policy stance, 3) a slowdown in portfolio shifts, and 4) improvement in the trade balance. We judge these factors are still unlikely to change the USD/JPY appreciation trend this year."