USD/JPY: The Japanese yen is set to remain strong – Danske

Analysts from Danske Bank keep their expectations for further strength in the Japanese yen. They forecast USD/JPY at 103.00 in a month, 102.00 in three months and at 100.00 in twelve months. 

Key Quotes: 

“To take JPY towards 110, we would need a material change in US nominal rates and/or global commodity prices. However, oversupply in the oil market remains a relevant factor, which limits upside risks to oil and thus downside risk to JPY (Japan is a net importer). We do not see US 10Y rising much above 1%, currently.”

“Moves in global risk aversion, commodities and domestic fiscal response have thrown USD/JPY back and forth. Notably, nominal US interest rates have remained largely unchanged amid rising inflation expectations and oil prices have consolidated. In turn, the JPY has been left to an 'Asia factor' and the decline in real rates, which has been USD negative. These factors are thus USD negative/JPY positive. Recently, rising real rates have led USD/JPY to go from 103 to 104.”

“We keep our expectations for further JPY strength. This strength is not due to a negative view on global risk sentiment but rather that we expect Asian outperformance to help JPY versus USD. Thus, the key risk to our profile becomes a shock that steepens the US yield curve and/or raises oil prices into the high USD60s per barrel for Brent. Jointly, on the back of this, we see little upside risk for EUR/JPY.”