USD/JPY: Japanese politics a downside risk factor – Danske Bank

Analysts   at Danske Bank, expect political uncertainty in Japan to rise and likely to weigh on the USD/JPY pair. Over the medium term, they see the pair in the range 110-115.

Key Quotes:

“Concerns about the Trump administration’s protectionist agenda and the case for higher inflation in the US also represent downside risks to USD/JPY.”

“USD/JPY remains highly correlated with the 10Y US treasury yield and the combination of a neutral speculative JPY positioning and higher US 10Y yields is likely to remain a supporting factor for USD/JPY.

“Political uncertainty in Japan is likely to weigh on USD/JPY over the summer ahead of the Liberal Democratic Party’s (LDP) leadership election in September, and we expect USD/JPY to trade within the 108-111.40 in the coming months targeting 110 in 1-3M.”

” Over the medium term, we expect USD/JPY to remain underpinned by the continued global growth outlook and Fed-BoJ divergence, and we expect the cross eventually to settle in the 110-115 range in 6-12M targeting 112 in 6-12M.”