EUR/JPY to move higher over next months – Danske Bank

Analysts at Danske Bank, see risks of temporary dips in EUR/JPY on both Italian budget concerns and general risk-off but they forecast it will move higher over the next months.  

Key Quotes:  

“Manufacturing PMI was unchanged at 52.5 in September compared to August, with a solid outlook for domestic orders which points to further business investment. This is good news for an economy facing a historically tight labour market. CPI inflation, excluding fresh food, rose to 0.9% y/y in August from 0.8% y/y in July. More than half the inflation is only energy, though, and the underlying price pressure in Japan thus remains very weak despite recent increases in cash earnings.”

“The Bank of Japan (BoJ) announced a series of adjustments to its policy at its monetary policy meeting on 31 July. Most importantly, the BoJ will allow more flexibility in yields around the 0% onwards. We expect the BoJ to keep its current policy intact until the end of 2019 at least. The relative picture calls for a move higher, as the ECB is closer to initiating its hiking cycle than the BoJ.”

“FX positioning remains stretched short JPY and given the overall fragile risk environment, we see risks of temporary dips in EUR/JPY. Going forward, risks are Trump’s protectionist agenda, Chinese growth concerns and CNY depreciation, which could weigh on Japan’s exports. We see
EUR/JPY at 129 in 1M, 130 in 3M, 135 in 6M and 144 in 12M.”