Conditions right for sustained weak JPY trend – Deutsche Bank

By FXStreet Taisuke Tanaka, Strategist at Deutsche Bank, suggests that the USD/JPY at 110 or below is consistent with their downgraded US outlook.

Key Quotes

“Since the onset of the Abe market in late 2012, the USD/JPY’s uptrend has been powered mainly by three forces. The key engines have been a firm US economy and the outlook for US interest rate hikes, and the secondary engines have been factors with direct market impacts: the BoJ’s unprecedented monetary easing, and public pension funds’ large-scale buying of Japanese equities and foreign securities. The most important of these has been a firm US economy: without this, sustained JPY depreciation would likely not have been possible, whatever action the BoJ took.

Until recently, our economics team forecast a firm floor for US GDP growth at around 2% for 2016-17, and expected the Fed to hike interest rates three times this year and four times next year. Our main scenario in these conditions has the USD/JPY holding at the 115-125 range, testing its upper limit when US rate hikes accelerate and temporarily exceeding 125, which is still alive as our official house view.

However, the US economy’s capacity for self-driven recovery has started to show signs of waning since …read more

Source:: FX Street