There is the possibility of an increase in JPY strength in the months ahead given the rise in Chinese related tensions as investor sentiment rather than domestic fundamentals can be a bigger driver of the Japanese yen. Therefore, economists at Rabobank forecast USD/JPY below 106 on a three-month view.
Key quotes
“There is precedent for the markets to ignore the build-up of bad news for some time before a certain trigger unleashes a wave of investor retrenchment; this is what happened at the start of the covid-19 crisis. If news regarding the build-up of Chinese tensions continues in the current trajectory, there is a very strong chance that the JPY will spike higher in the coming months.”
“We would favour buying the JPY on dips in the current environment and see risk of USD/JPY heading back below 106 on a three-month view.”
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