USD/JPY seen at 116.00 in 6-12 month – Danske Bank

Chief Analyst at Danske Bank Christin Tuxen sees the pair climbing to the 116.00 area in the medium/long term.

Key Quotes

“Omnipresent USD weakness has weighed on the cross alongside BoJ exit discussions surfacing”.

“Speculation that BoJ is starting to consider its eventual exit has come to the fore but we stress that it remains much too early for BoJ to signal an exit: despite a historically low unemployment rate, wage growth is remarkably absent in Japan”.

“Thus, just as we see with the ECB, the inflation job is far from done for BoJ. That said, BoJ could get a bit of help from a Fed-led move up in USD/JPY near term: indeed, a Fed that looks determined to move on with policy normalisation should lend some support to USD near term”.

“Hence, we expect relative rates to move in favour of USD to outweigh the underlying fundamental USD/JPY depreciation pressure stemming from valuation and current account flows. We see the cross edging gradually higher to 112 in 1-3M (prev. 114) and 116 in 6-12M (unchanged)”.