Short-term risk of USD/JPY dropping below 110 – Deutsche Bank
By FXStreet Taisuke Tanaka, Strategist at Deutsche Bank, suggests that the prospects for sluggish growth in the US economy have increased and their economist has lowered US GDP growth rate forecasts for 1Q, 2Q, and 3Q 2016 to 0.5%, 1.0%, and 1.2% respectively.
Key Quotes
“We expect the Fed to postpone policy rate hikes during this period. We had to accept implication from this outlook that the USD/JPY would lose the most important support in ongoing risk-off.
Furthermore, globally, markets have crossed the threshold into an adverse cycle. This could require joint action by leading countries instead of a waiting autonomous market recovery. We think the yen, as a creditor-country currency, could easily strengthen as the risk-off trend deepens in the adverse cycle.
We doubt that the BoJ’s policies can sustain yen depreciation in a global risk-off environment. The yen-weakening effect from the BoJ’s minus interest rate policy was lost in just three business days, triggering instead a shift to stronger risk-off flows by investors.
Japan’s institutional investors lean toward hedging (dollar-selling) ahead of fiscal-year account closings at end-March. We see short-term risk of the USD/JPY rate dropping below 110. However, letting the yen strengthen would be a setback for Abenomics. Japanese authorities could intervene in …read more
Source:: FX Street
