USD/JPY: Global inflation outlook and US treasury yields – Danske Bank

The USD/JPY pair is about to end the week hovering around 136.50/80, near the same level it had a week ago. Analysts from Danske Bank forecast the pair at 137 in a month, at 139 in three months, and then to move lower, reaching 128 in twelve months. 

Key Quotes:

“Upside risks to USD/JPY come from a continued pressure for higher global yields, although intervention will likely cap sudden moves higher. If global slowdown turns into a more severe recession and speculators unwind short JPY positions, flatter yield curves and cheaper energy can quickly become a tailwind for JPY.”

“The key driver of USD/JPY remains the global inflation outlook and US treasury yields. Following the lower than expected US October and November CPI prints, JPY has strengthened quite significantly but remains weak in a historical perspective. With the US labour market still in good shape, we continue to see a pressure on Fed to tighten further and elevated energy prices will weigh on the JPY in the short term. Looking further ahead, we do expect a stronger JPY.”