USD/JPY: Downside risk towards 105 – Danske Bank

Piet P. H. Christiansen, senior analyst at Danske Bank, points out that the USD/JPY pair crossed 107.35 due to a combination of dovish Fed and slight geopolitical concerns on US-Iran relations.

Key Quotes

“The dominant theme, we think, will be a continued downward adjustment of US real rates to support global growth - but also strengthen the JPY. Hence, we continue to forecast 107 on a 3M horizon but clearly see downside risk towards 105 if more Fed adjustment is needed to turn global growth around. At the Bank of Japan’s meeting, the signal was quite muted. In the bigger picture, BoJ passiveness might be an acceptable strategy as broad dollar weakness could very well also lift global inflation expectations.”

“We think the BoJ could start to contemplate a reaction if USD/JPY moves into a range of 100-105 and the downward pressure on inflation becomes stronger but such a scenario is still rather hypothetical.”