USD/JPY targeting 114 in 3M - Danske Bank

Analysts from Danske Bank, “fundamentally” still see a case for a higher USD/JPY over the medium term horizon.

Key Quotes: 

“While the combination of strong global PMIs and postponement of US debt limit risk is good for risk appetite and has improved the prospect of a higher USD/JPY in the near term, geopolitical uncertainty related to North Korea still represents a substantial downside risk and will continue to weigh on the cross.”

“We still expect USD/JPY to trade within the 108-111 range near term targeting 111 in 1M and 114 in 3M.”

“Fundamentally, we still see a case for a higher USD/JPY over the medium term horizon, driven by Fed-BoJ divergence, higher global yields (eventually) supported by global growth recovery and portfolio outflow out of Japan. We target USD/JPY at 116 in 6-12M.”

“While the underlying fundamentals combined with the postponement of the US debt limit risk support the case for a higher USD/JPY in the coming months, we prefer to stay sidelined USD/JPY for now. In our view, the combination of highly unpredictable political risks related to North Korea, and the risk of rising volatility and JPY appreciation pressure driven by domestic political uncertainty in Japan, leaves a less attractive risk/reward.”