Softer US yields may be necessary to bring the pair down – Rabobank

Analysts at Rabobank expect the USD/JPY pair to remain around current levels on a one to three month view. They consider the pair could pullback toward 130 around year end.

Key Quotes:

“It can be inferred that if and when wages and prices do rise the BoJ will be able to change the tone of monetary policy. Meanwhile the BoJ is maintaining extremely accommodative policy suggesting that USD/JPY remains exposed to the interest rate differentials between treasuries and JGBs.”

“Although we expect USD/JPY to remain elevated around current levels on a 1 to 3 month view we see scope for USD/JPY to edge back to 130 around year end.”

“Japan’s history of weak wage inflation and the low acceptance of price rises in the country mean that Kuroda’s hopes of hitting the 2% CPI inflation target in a sustainable way are by no way guaranteed. If it is assumed that BoJ policies remain accommodative USD/JPY may be at risk of further gain. Softer yields in the US may be necessary to bring the currency pair down to lower levels.”

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