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According to analysts from Danske Bankt, the upcoming summit meeting between PM Shinzo Abe and US president Trump (expected around 25 September) represents a downside risk to USD/JPY and Japanese equity markets.

Key Quotes:  

“We expect USD/JPY to continue trading mostly sideways in the near term, with risk appetite and yields on 10Y UST the main drivers. Political events, most notably a potential summit meeting between Abe and Trump, represent a downside risk if concerns about a US-Japanese trade war increase. Taking FX positioning and the overall fragile risk environment into consideration, we see little potential for a sustained rally in USD/JPY above July’s high at 113.17 in the near term. We see the cross within a 110-113 range in the coming months, targeting 112 in 1-3M.”

“Longer term, the BoJ’s monetary policy should remain supportive for USD/JPY, driven by widening US-Japan yield spreads and continued outflows out of Japan. 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.”

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