USD/JPY forecast at 101 by the first quarter 2021 – CIBC

The yen has been favoured by narrowed spreads with Treasuries and by the decline of the US dollar, argue analysts at CIBC. The see the USD/JPY pair trading at 103 during the fourth quarter and at 101 in the first of next year. 

Key Quotes: 

“The yen continues to perform even in the midst of a market recovery. Indeed, a good chunk of the JPY’s move higher can be attributed to narrowing short-and-long rate spreads against UST. This is supported by weekly MoF data indicating that the pace of outward foreign investment flows is still much less than it was before the crisis hit earlier this year.”

“For the real economy, the hope right now is that the Chinese economy will continue to recover, helping Japanese exports and easing pressure to do more on the fiscal front. Authorities have highlighted that government finances are in a tough spot and that it’s unlikely that the sales tax will be cut.”

“The BoJ remains on autopilot, but are ready to act if yields drift higher. The JPY should  continue to take its cue from a weaker USD plus narrowing spreads for now.”