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According to Jane Foley, senior FX strategist at Rabobank, USD/JPY pair after having dropped lower from the 114.00 area in December as the market formed a more dovish outlook regarding the Federal Reserve, has trended moderately higher since the start of the year which is counter to their expectation.  

Key Quotes

“While we have maintained a view in favour of USD strength, we had anticipated that the JPY would hold its own vs the USD as slower world growth promoted demand for safe haven.   Instead it appears that the more accommodative policy stance of the majority of central banks this year has reassured investors and dimmed demand for the safe haven JPY.   We have revised up our 6 month forecast for USD/JPY to 110, from a previous forecast of 108.”

“In view of the JPY’s stance of a prime safe haven currency and the very low levels of rates maintained by the BoJ, the recent environment has not been supportive of the Japanese currency.”

“Looking ahead, we continue to see risks on the horizon. It is our view that the US economy could dip into technical recession in the latter half of 2020.   Despite some reassurance from the Eurozone Q1 GDP release, forward looking indicators has thrown up some worrying signs for Q2.   While the German and Japanese consumers continue to derive support from strong employment levels both their externals sectors have been weak reflecting weaker elsewhere and most particularly in China.   S.Korea has also suffered from weak export demand as a consequent of weakness in the Chinese market.”

“Additionally there is scope that populism will complicate the outlook for the EU parliamentary elections later this month and that UK politics will remain in turmoil in the wake of the Brexit debacle.   In balance we see the potential for this environment to lend some safe haven support to the JPY in the coming months, but see scope for gains to be limited.”