According to analysts from Danske Bank, political uncertainty in Japan is likely to weigh on the EUR/JPY pair ahead of the Liberal Democratic Party’s (LDP) leadership election in September. They expect expect EUR/JPY to remain underpinned by ECB-BoJ divergence over the medium-term.
Key Quotes:
“Economic activity has slowed down in Japan this year after a very strong 2017. Q1 GDP growth was slightly negative for the first time since 2016.”
“The Bank of Japan (BoJ) kept its monetary policy unchanged with an 8-1 vote at its June meeting. The BoJ downgraded its assessment of inflation and now sees CPI inflation in a range of 0.5-1%, which indicates that the BoJ might revise down its inflation outlook when it releases its quarterly forecast update in July. We expect the Bank of Japan to stay on hold for the coming 12 months.”
“The cyclical picture in the eurozone is likely to counter the near-term upside potential for the EUR/JPY which we expect will range trade in the coming months before heading higher towards 140 in 12M.”
“Abe’s approval ratings have plummeted this spring, and political uncertainty is likely to increase ahead of the Liberal Democratic Party’s (LDP) internal leadership elections in September. This could weigh on EUR/JPY over the summer. In addition, concerns about the Trump administration’s protectionist agenda also represent downside risks for EUR/JPY.”
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