Forex Flash: What will the JPY do? – BTMU, Danske Bank, Rabobank and UBS (Barcelona) - Undoubtedly, the Japanese yen grabbed all the attention of the FX community this week, after LDP leader - and most likely the new PM after the elections in December – commented his preference for a weaker yen and a higher inflation target.

Experts do express different views regarding the next direction of the Japanese safe haven:

For example, Lee Hardman, Currency Economist at BTMU, affirms “We remain sceptical that recent yen weakness can be sustained in the near-term given both the scope for BoJ easing to still disappoint more aggressive expectations now, and BoJ easing will also be offset by further easing from other major central banks ahead dampening its yen negative impact.”

Jane Foley, Senior Currency Strategist at Rabobank, remarks that the effectiveness of further monetary action would contrast with the soft performance of JGBs in the present year, extremely low interest rates and a scarce demand for credit “The ongoing nature of weak credit demand in Japan has been associated with an inability of very accommodative policy over a very long time frame to inject inflation back into the Japanese economy. While we judge that verbal intervention from various officials this year has tempered demand for the yen, given the current cautious tone in the market on the back of US fiscal cliff worries, recession and crisis fears in the Eurozone and Middle Eastern tension, we expect that USD/JPY will be holding lower levels by year end on the back of safe haven demand as the possibility that Fed QE fears will have risen”.

Senior Analyst at Danske Bank, M.Helt, commented “a change of government also implies a higher probability of a weaker JPY… We expect BoJ to continue to deliver considerable monetary easing and expect the yen to weaken significantly against both USD and EUR over the coming six months time”.

Analyst Geoffrey Yu at the Swiss UBS, reiterated the bullish outlook on the cross, “the sharp rally yesterday stalled just below the resistance offered at 81.49. A break above would expose 83.30. Any setback should be limited in the short term. Support lies at 80.12”.