Expect USD/JPY to increase further in coming months – Danske Bank

Morten Helt, Senior Analyst at Danske Bank, notes that the USD/JPY has fallen in recent weeks as markets’ pricing of reflation has taken a breather and the USD has declined as the lack of information on Trump’s plans for the economy have weighed on investor sentiment.

Key Quotes

“We still expect the JPY to continue suffering in an environment with rising global bond yields and a higher oil price and expect USD/JPY to increase further in coming months. However, short term, momentum for additional yen weakening is likely to level off as the short JPY trade has become crowded. Moreover, a stretched short yen positioning warrants a larger USD/JPY downside risk and higher sensitivity to investors’ risk appetite. We target the cross at 117 in 1M (previously121) and 118 in 3M (119).”

“Longer term, we expect USD/JPY to stabilise, targeting 118 in 612M, as we expect portfolio outflows out of Japan to counter the underlying appreciation pressure on JPY stemming from fundamentals.”