USD/JPY May Hold for Now, but Should Eventually Head Below ¥105 – Deutsche Bank
USD/JPY May Hold for Now, but Should Eventually Head Below ¥105 – Deutsche Bank
Taisuke Tanaka, Strategist at Deutsche Bank, suggests that noting the
sluggishness in the US economy and the chance that the Fed may forego
another rate hike until after the presidential election, we reduced our
end-June and end-September forecasts to ¥103 and ¥101 (previously: ¥105
and ¥109).
Key Quotes
“We reiterate our view that the USD/JPY should return to the over-¥110
level next year in line with our economist's forecast that the US
economy should rebound to over 2% growth. Still, we are cautious of
downward risk for the short-run.
This week's first focus will be Japan's preliminary GDP estimates for 1Q
2016 on Wednesday. The average forecast on the growth is around 0%.
Prime Minister Shinzo Abe is expected to announce a fiscal stimulus
package early next month and shelve the consumption tax hike currently
scheduled in April 2017. Still, we cannot envision any outbreak of
risk-on weak-yen sentiment amid the mild domestic recession.
The second focus is the meeting of G7 finance ministers and central
bankers this Friday and Saturday. Few market participants expect an
agreement to coordinate macroeconomic policy, while USD/JPY markets
could respond nervously to any warnings or disapproving comments against
a currency devaluation war from the US or non-Japan nations.
The biggest point for the USD/JPY remains the slowing growth in the US
economy. We expect a slight rebound in this week's US housing data
(building permit, starts, sales and NAHB index), industrial production
and CPI.
The USD/JPY may not experience any sudden intensification in downward
pressure given the expected steadiness of US statistics this week and
the vast volume of speculative yen longs remained in the market. Still,
we believe the rate will likely drop below ¥105 in the coming weeks amid
the risk of a US economic slowdown, fallback in risk markets, China
concerns and constraints on Japanese forex intervention.”
