Spot is seen edging higher in the longer run, always supported by the divergence in policy between the Fed and the BoJ.
Key Quotes
“JPY weakness has materialised against USD and EUR despite rising trade concerns of late as the latter seems to currently affect the FX market mainly via economic (USD positive, JPY negative via its China exposure) rather than risk (JPY positive) channels”.
“The recent level shift in USD/JPY has led us to revise higher our 1-3M forecasts to 112 in 1-3M (previously 110). That said, we stress that disregarding trade tensions, there are downside risks due to the lingering political uncertainty in Japan ahead of the Liberal Democratic Party’s (LDP) leadership election in September”.
“Longer term, we expect USD/JPY to remain underpinned by Fed-Bank of Japan divergence and a continued move higher in US yields and now target USD/JPY at 114 in 6-12M (previously 112)”.
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