USD/JPY: April nerves calming – Deutsche Bank

Taisuke Tanaka, Strategist at Deutsche Bank, remains bullish that the USD/JPY rate will remain over-110 in May and test above 115 over 3-6 months as the market is stabilizing after the recent political and geopolitical concerns.

Key Quotes

 “The market at the start of the week was relieved at the result of the French presidential election, and both the EUR/USD and the USD/JPY rebounded. The candidates in the run-off are the far-right Marine Le Pen and the centrist Emmanuel Macron. Mr. Macron is regarded as the likely winner in the second round election on May 7th (Ifop, via The Guardian), which we think would probably reduce Frexit risk.”

“Concerns that were present in April are disappearing steadily. Although a series of factors including weaker expectations for US policy after the withdrawal of the Obama-care reform bill, soft US economic indicators during April, waning expectations for a Fed rate hike in June, East Asian geopolitical risk, US-China summit talks, Japan-US economic dialog, and G20 undermined the USD/JPY bulls, the rate had narrow support at the 108 level. With unsettling factors that need monitoring of course still present, it is difficult to foresee the USD/JPY rate rebounding sharply soon. The US government debt ceiling deadline expires on 27 April (Thursday), and geopolitical risk in East Asia may rise particularly around 25 April (Tuesday), the 85th anniversary of the founding of the North Korean Army.”

“However, we also think favorable news will likely increase gradually. First, Washington is to announce a tax reform bill on Wednesday. (However, the Wall Street Journal reports that details have not been completely finalized yet and that opinion within the administration regarding the announcement's timing is divided.) There has been considerable negative comment about the Trump administration's ability to deliver on its policy recently, but we think a scenario for at least partial delivery is appropriate. With US economic indicators in May and after also expected to be firmer than in April, we think expectations for a June rate hike could resurface. We estimate that the BoJ is likely to maintain current policy at the 26-27 April (Wed-Thu) board meeting, but do not see this impairing the USD/JPY rate's bullish path.”