USD/JPY up-cycle cut to ¥118 at end-2017, but extended to ¥122 at end-2018 – Deutsche Bank

Taisuke Tanaka, Strategist at Deutsche Bank, explains that their new USD/JPY forecasts are ¥118 at end-2017 and ¥122 at end-2018.

Key Quotes

“The rate, having moved past many tense factors last month, has now recovered to the ¥110 level and is receiving good support from buying on weakness by life insurers and other institutional investors. However, we believe an early rise in over-115 level can be somewhat hurt by delays in the Trump administration's policies, the low level of UST yields, fears of US-Japanese friction over trade imbalances or currencies, and the geopolitical situation in East Asia.”

“Our new EUR/USD forecast is $1.02 at end-2017 and $0.95 at end-2018. The gap between US and European economies and interest rates weighs against the euro's prospects. Still, sluggish US policy implementation and hopes in Europe of a retreat in political uncertainty and an improving economy should keep the EUR/USD in range trading. If the ECB hastens its normalization process from its ultra-accommodative monetary policy, it could necessitate another revision in our forex forecasts.”

While we are bearish on both the euro a”nd yen versus the dollar, it is difficult to discern which of those two currencies will be stronger than the other. However, the factors motivating the euro and yen are not necessarily the same. We expect the EUR/JPY to trade in a core range of ¥120±5 for now. If the rate should reach or go beyond the lower end of this range, we would recommend a contrarian trade.”