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.”
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