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Analysts at Danske Bank, expect the EUR/JPY pair to rise during 2019. They see the Bank of Japan likely to maintain new and more credible policy in 2019.

Key Quotes:  

“The Japanese economy has slowed in 2018 so far following strong growth in 2017 but we expect growth to remain relatively solid and to contribute to further tightening of an already red-hot labour market in 2019. We project 1.1% GDP growth for 2019 that will increasingly be supported by consumer spending, especially in the period leading up to the consumption tax hike from 8% to 10% scheduled for October 2019. In fact, the tax hike will very likely lead to slowing growth in Q4 19 and is set to have a negative impact on economic activity in 2020.”

“The BoJ announced a number of adjustments to its monetary policy in July, introducing a wider target range for 10Y government bonds from plus and minus 0.1% to plus and minus 0.2% relative to the BoJ target of 0%. The BoJ also adopted forward guidance on its policy rates and clearly signalled that it is not planning to hike rates.”

“We expect EUR/JPY to increase towards 146 during 2019, driven by relative monetary policies as rate hikes from the ECB move closer and financial outflows out of Japan continue.”

“Although the ECB has become more confident about the inflation outlook on the back of rising wages, core inflation will rise only gradually throughout 2018 and 2019. The improved macro and inflation outlook should allow the ECB to conclude the QE programme end-2018, but with inflation remaining below target, we do not expect it to deliver its first 20bp interest rate hike until December 2019.”  

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