USD/JPY seen at 115.00 in 3-month – Danske Bank

Sverre Holbek, Senior Analyst at Danske Bank, believes the pair could climb to the 115.00 area in the near term.

Key Quotes

“While there was no coordinated response from the G7 nations’ Summit in Japan ending on Friday, the statement following the meetings highlighted concerns about the current economic challenges and said that the G7 countries will use ‘all policy tools – monetary, fiscal and structural – individually and collectively to strengthen global demand and address supply constraints while continuing our efforts to put debt on a sustainable path’. Especially the latter supports our call about further fiscal and monetary stimulus in Japan in the coming months”.

“The latest IMM data released on Friday showed a significant reduction in speculative long JPY bets ahead of the G7 Summit last week – an indication that expectations of a policy response in Japan is building”.

“With the G7 meetings now out of the way, focus in Japan will turn to domestic politics and this morning, expectations of a fiscal stimulus were fueled further by comments from LDP (ruling party) officials saying that Abe is likely to call for a postponement of the planned VAT hike”.

“We think this will be announced in connection with a larger fiscal stimulus package in June. LDP officials said that Abe will make his decision before this summer’s Upper House elections. We expect the combination of fiscal and monetary easing to lift USD/JPY back into the 112-117 range. We target USD/JPY at 115 in 3M and 116 in 6-12M”.