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Analysts at Wells Fargo, still expect modest gains in yen over the medium-term as broad US dollar softness sets in. They see that less market volatility could limit yen’s gains.  

Key Quotes:  

“Japan’s economy has slowed more recently. The economy experienced up-and-down growth in 2018, while inflation still remains well below the central bank’s target. That sluggish momentum has carried into 2019, with activity indicators suggesting economic growth is likely to remain subdued, while an increase in the consumption tax this year should also weigh on the economy.”

“We no longer expect the Bank of Japan (BoJ) to tighten monetary policy in Q2-2019.”

“Despite our forecast policy change, we believe the path for the yen remains relatively unchanged. At this time, we still expect modest gains in the yen over the medium term as the Fed becomes less hawkish and the U.S. dollar shows broad-based softness, while residual volatility could also support the yen given its safe-haven status.”

“The shift in our outlook for BoJ policy has been matched by the shift in our outlook for Federal Reserve policy over the past several months. As a result of a more dovish Fed, we now expect only one Fed rate hike in 2019. Indeed, with little action from the BoJ, it will likely be swings in Federal Reserve monetary policy outlook that will be influential for the dollar/yen exchange rate.”

“One other factor that could have some influence on the USD/JPY exchange rate would be any ongoing market volatility and resulting safe haven support for the yen. While there will likely be episodes of volatility during 2019, some market and event risks appear to be moving in a more favorable direction. For example, U.S.-China trade discussions appear to be moving in a more constructive direction, while we ultimately believe a Brexit deal will be struck between the United Kingdom and the European Union. We believe a less volatile market backdrop could limit the extent of those yen gains.”