EUR/JPY to move higher over the medium-term – Danske Bank

According to analysts from Danske Bank, a recovery in risky assets has weighed somewhat on the Japanese yen on a broader basis while a renewed setback in risk sentiment would support the currency. They forecast EUR/JPY at 140 in a twelve-month horizon.  

Key Quotes:  

“The Bank of Japan (BoJ) continues to emphasise its willingness to keep monetary policy accommodative and we do not expect any changes before the end of 2019 at the earliest. However, its actions are starting to look contradictory, as slowing monetary growth will not bring the BoJ closer to its inflation aim, in our view. It could furthermore start to become a JPY positive.

“Japan continues to be a significant capital exporter via its large current account surplus of close to 4% of GDP, which is depressing Japanese real interest rates further. Growth in JPY excess liquidity slowed down in 2018 and with the BoJ on hold, it is unlikely to pick up again in the short term.

“A recovery in risky assets has weighed somewhat on JPY on a broader basis. A renewed setback in risk sentiment would support JPY. Another risk is the potential for oil prices to overshoot, which would be a JPY negative. We see EUR/JPY at 126.5, 128.7, 132 and 140 in 1, 3, 6 and 12M respectively.”