The US Dollar appreciation against the Euro and the Australian currency

Osamu Takashima, Chief FX Strategist at Citibank, on Japanese Yen

What events could determine the behavior of Japanese Yen until the end of 2015?

As you may observe the historic data during the last two years when the Yen has found its peak, the depth of the adjustment was five figures. For instance, in January 2014, the Yen peaked at 105 levels, at the time the USD/JPY pair was put to 100 and the depth of the adjustment was five figures as well. In December, the pair has reached 121 levels, afterwards it was put to 116 in January of 2015. In this sense, it looks like 120 levels is a very comfortable one for the Yen to bottom out. In this case, the JPY could stay in a range between 120 and 125 until this year end.

However, in 2013 the USD/JPY was set back from 103 to 93 in between May and June, and only in two months the pair was put back by ten big figures, at that time the market sentiment was quite pessimistic. For instance, emerging markets were declining and US stocks were dampened – this situation is rather similar with the one in 2013, whereas we need to pay attention to a risk of ten big figures to get back this time.

This adjustment will be caused by the Fed, and I do not believe that it can hike the rate in the next month. Nevertheless, due to the market turbulence this time, it is quite difficult for the Federal Reserve to implement the lift off in September. In this case, market sentiment could become positive and the Yen could find a bottom at around 120, whilst the pair will stay in range between 120 and 125. However, in case the Fed will decide to act in September despite the mentioned circumstance in the market - it could deteriorate the sentiment and dampen the Japanese currency to 115.

What are your forecasts for USD/JPY, EUR/JPY and AUD/JPY for the short and long-term?

In general we are bullish on the US Dollar in the long-term view. We expect a second tax hike in Japan in April 2017. It is expected that in 2017 it will be raised to 10% and at that time the BoJ led by Kuroda who lays great importance on fiscal consolidation, will implement another accommodation. That could depreciate the Yen against the Greenback, and in historical terms the ceiling would be at somewhat 135 levels. However, this year the pair will find itself in a very tough period.

We expect the US Dollar appreciation against the Euro and the Australian currency, and Citi Group anticipates seeing the EUR/USD at parity in the coming years. Therefore, in case the Yen goes to 135 – the EUR/JPY should be trading around 135. I am extremely skeptical in regards of an upside movement in EUR/JPY, as well as AUD/JPY.