EUR/JPY: to recover gradually on global growth outlook and ECB-BoJ divergence - Danske Bank

Analysts from Danske Bank, still see risks skewed towards a stronger JPY in coming months amid a combination of portfolio flows, stretched short speculative JPY positioning and not least concerns about the Trump administrations protectionist agenda. Longer term, they expect EUR/JPY  to gradually recover supported by continued solid global growth outlook and ECB-Bank of Japan (BoJ) divergence.

Key Quotes: 

“In April, we expect the new leadership of the BoJ to take office. The government has nominated Masazumi Wakatabe, who is an advocate of aggressive easing, and BoJ Executive Director Masayoshi Amamiya as the new deputy governors. With Wakatabe and Amamiya the likely new deputies, the BoJ board is likely to become slightly more dovish, suggesting there will be no change in monetary policy under the new BoJ leadership. We expect the BoJ to keep its policy unchanged over our 12M forecast horizon, as we still believe the BoJ is too optimistic on the inflation outlook.”

“The JPY appreciation pressure stemming from the sell-off in the US and European fixed income markets has eased. However, we still see risks skewed towards a stronger JPY in coming months, as we expect the combination of portfolio flows, stretched short speculative JPY positioning and not least concerns about the Trump administration’s protectionist agenda to underpin the JPY.”

“Over the medium term, we expect EUR/JPY gradually to recover supported by a continued solid global growth outlook and ECB-BoJ divergence. We target EUR/JPY at 137.50 in 6M and 143 in 12M.”