Analysts at Rabobank, expect the USD/JPY pair to trade around 110 area during the second half of the year.
Key Quotes:
“The Fed is by a large margin the most hawkish central bank in the G10. This factor suggests scope for further broad based USD gains through the year. In view of their strong safe-haven associations, the very accommodative monetary policy settings of the SNB and the BoJ will have only limited influence over the CHF and the BoJ in times of crisis.”
“This morning’s release of the BoJ’s Q2 Tankan business survey showed that confidence among Japan’s biggest manufacturers slipped for a second straight quarter. The report showed a reading of 21 for major companies in June from 24 in March. From an historical perspective this is still a strong reading. However, the drop in confidence highlights concerns related to trade tensions in addition to a firmer JPY. The average predicted JPY rate for the business year from April appreciated to 107.26 from 109.66 in March. Unsurprisingly, sentiment among iron and steel makers slipped in response to concerns about US tariffs and confidence among motor-vehicles makers also dropped in response to Trump’s concerns about imported cars. The drop in the confidence level recorded by the Tankan report, is the latest piece of evidence indicating that the Japanese economy has slowed from last year’s levels. This factor combined with the fact that CPI inflation is already a long way from the BoJ’s target, strengthens the risk that the Bank will retain its commitment to its QQE policy going forward.”
“Interest rate differentials should be supportive of USD/JPY. However, the JPY has strong safe haven credentials. Although the JPY softened in response to the improvement in relations between N.Korea and the US, given the economic threat from trade tensions we expect the JPY to see good support going forward. On balance, we expect USD/JPY to hold around the 110/110 area during H2.”
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