Home EUR/JPY: Supported by US yields, affected by weaker Eurozone cyclical picture – Danske Bank
FXStreet News

EUR/JPY: Supported by US yields, affected by weaker Eurozone cyclical picture – Danske Bank

The Japanese Yen has reconnected in its correlation with US 10Y Treasury yields, making EUR/JPY a function of USD/JPY, explained analysts at Danske Bank. They see higher US yields as support for EUR/JPY in the short-term but they expect that to be temporarily countered by the weaker cyclical picture in the Eurozone. They forecast EUR/JPY at 130.90 in 3M, 137.76 6M and 143.36 12M.

Key Quotes:

“GDP growth momentum in Japan eased in Q4 17, and Q1 data was also to the weak side with annualised GDP growth at -0.6% q/q after 0.6% in Q4. Recent oil price increases will cause higher inflation in the short run but also deprive consumers of purchasing power. Excluding fresh food and energy, inflation still stands at just 0.5% y/y.”

“The Bank of Japan kept its monetary policy unchanged in April as expected. The BoJ removed the reference to hitting the 2% inflation target in the fiscal year 2019. This is an interesting change and a clear indication that the BoJ expects it to take longer for inflation to reach the 2% target. In our main scenario, we expect the BoJ to keep its current yield curve control unchanged for the next 12 months.”

“USD/JPY remains highly correlated with the 10Y US treasury yield and the combination of neutral speculative JPY positioning and higher US 10Y yields could be a supporting factor also for EUR/JPY. Meanwhile, the cyclical picture in the eurozone is likely to counter the neat-term upside potential for the EUR/JPY, which we expect will range trade in the coming months before heading higher.”

FX Street

FX Street

FXStreet is the leading independent portal dedicated to the Foreign Exchange (Forex) market. It was launched in 2000 and the portal has always been proud of their unyielding commitment to provide objective and unbiased information, to enable their users to take better and more confident decisions.