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According to analysts at Danske Bank, Bank of Japan’s monetary policy should remain supportive for the USD/JPY pair in the long term.  

Key Quotes:  

“In our view, the BoJ’s monetary policy should remain supportive for USD/JPY in the longer term. On the one hand, slightly higher Japanese yields and higher interest rate volatility are negative for USD/JPY. On the other, the adjustments have improved the credibility of the BoJ’s policy, which is positive for USD/JPY. Global fixed markets and risk sentiment are likely to remain key drivers for the JPY.”

“Taking FX positioning and the overall fragile risk environment into consideration, we see little near-term potential for a sustained rally in USD/JPY above July’s high of 113.17. We target 111 in 1M (previously 112) and 112 in 3M. Over the medium term, we expect USD/JPY to remain underpinned by a decent global growth outlook and Fed-BoJ divergence. We target 114 in 6-12M.”

“Concerns about the Trump administration’s protectionist agenda and the case for higher inflation in the US represent downside risks to USD/JPY. Chinese growth concerns and CNY depreciation could potentially weigh on Japan’s main growth engine – exports.”