EUR/JPY: Correction near-term, to 137 in 12M - Danske Bank

EUR/JPY: Correction near-term, to 137 in 12M - Danske Bank

30 June 2017, 21:37
Roman Vashchilin

According to analysts from Danske Bank, it is too early for a discussion about the exit strategy from the Bank of Japan. They see EUR/JPYmoving toward 137 in a year from now. 

Key Quotes:

“We see any discussions regarding an exit from unconventional policy by the Bank of Japan (BoJ) as premature. We target EUR/JPY at 124 in 1M, 122 in 3M, 130 in 6M and 137 in 12M.”

“The output gap has closed in Japan and we expect the Japanese economy to continue to grow above trend in coming years.”

“Since the introduction of Yield-Curve Control (YCC) in 2016, under which the BoJ now targets both the short-term policy interest rate (at -0.1%) and the 10Y Japanese government bond (JGB) yield (at 0%), the BoJ has de facto tapered its JGB purchases and is currently buying an amount equivalent of an annual pace of JPY60trn. We expect it to keep its policy unchanged throughout our forecast horizon, notwithstanding recent discussions of an eventual exit from unconventional policy.”

“Speculation that the BoJ is starting to consider its eventual exit has come to the fore but we stress that it remains much too early for the 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 the BoJ.”

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