USD/JPY: Forecast at 110 in 1-6M - Danske Bank

Analysts at Danske Bank see the USD/JPY pair trading around the current levels over the next twelve months as 2019 does not look particularly positive for the US dollar and amid recent disinflationary signals from Japan.

Key Quotes: 

“The acceleration in Japanese money supply growth and CPI inflation seen in 2016 and 2017 faded last year. This has also started to carry over to nominal GDP growth. In particular, we think it is important to monitor the slowing growth of the Japanese monetary base, which seems to be at the centre of the development
outlined above. The Bank of Japan (BoJ) continues to emphasise its willingness to keep monetary policy accommodative and we do not expect any changes before the end of 2019 at the earliest. However, its actions are starting to look contradictory as slowing monetary growth will not bring BoJ closer to its inflation aim, in our view. It could furthermore start to become a JPY positive.”

“A recovery in risky assets has weighed some on JPY on a broader basis. A renewed setback in risk sentiment would support JPY. Another risk to bear in mind is the potential for oil prices to overshoot if, e.g. sentiment around Iran sanctions deteriorate when temporary waivers expire in April. That in turn would be JPY negative.”

“2019 does not look to be particularly USD positive following the recent more dovish tone from the Fed. We are, however, vigilant to recent disinflationary red flags in Japan. Overall, we keep our USD/JPY forecast unchanged at 110 in 1-6M and 112 in 12M.”