Deutsche Bank: USD/JPY to rise to ¥125-128 level in Aug-Oct
The USD/JPY remains solid, suggesting strength on the demand side.
Notwithstanding fears over Greece, China and commodities, we believe that as
long as there is no tail risk, the main concern for USD/JPY markets will remain
on the firmness of US economic data and the chances of a Fed rate hike. The
Fed is considering factors, especially in labor markets, that might justify the
beginning of its rate hike cycle this year. As the actual rate increase nears, we
believe the USD/JPY will set new highs. The focus this week will be US
employment data. We believe the USD/JPY could jump to a ¥125-128 level
over the next few months in reflection of robust US economic indicators.
The yen tends to strengthen in August in a seasonal pattern, though the cause
is not necessarily clear. One theory is that Japanese exporters and institutional
investors receiving UST interest payments move early to execute dollar sales
for hedge amid thin trading in the summer markets. Experience suggests that
it is less the case that the yen is prone to rise during the month than that it is
relatively resistant to any weakening. This anomaly should easily pass once the
trend in the fundamentals becomes clear. We believe strong US indicators will
again bolster the USD/JPY like last year.
We do not foresee an additional BoJ easing either at this week’s meeting
(Thursday-Friday) or in the foreseeable future. At the same time, we believe
GDP growth in 2Q 2015 (17 August) will prove negative. If the BoJ does not
ease further and the economy remains weak, it could harm risk-on sentiment,
which has been supporting a higher USD/JPY. However, we feel that the BoJ’s
QQE is already sufficiently accommodative, underpinning the yen bear market.
Moreover, we believe the economy will return to steady growth in 3Q. We
expect the USD/JPY to strengthen in August-October and edge upward to only
around ¥130 throughout 2016.
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