USD/JPY could drop towards 105 by the end of the year - Rabobank

Analysts at Rabobank kept its forecast of USD/JPY around the 105 regions by the end of the year. They explain the yen will often be more drive by international rather than domestic factors. 

Key Quotes: 

“Currently the Bloomberg market consensus points to USD/JPY ending the year lower at 108. This is a little higher than our view that there is scope for a move towards 105. Due to its status as a safe haven currency, the JPY will often be driven more by international than domestic factors.”

“Even though the BoJ continues to signal a strong commitment to its huge QQE stimulus programme, we would expect the JPY to strengthen on a drop in risk appetite in the market. Against a backdrop of slowing global growth we would expect investors to become increasingly  nervous of risky assets such as Emerging Market currencies this year and to retrench into safe havens. Since the USD has some safe haven value, this is likely to mean that the USD will remain well supported against a wide basket of currencies but that it is likely to be outperformed by the JPY. That said, there is risk that this logic could be thrown off course if access to central bank liquidity dulls the level of market anxiety.”

“The weight of potential bad news means that for the moment we are maintaining our forecast that USD/JPY could drop towards the 105 area by the end of the year. However, the management of risk appetite by central banks is a factor that we will be watching closely.”