USD/JPY: risk skewed to the downside – Danske Bank

Christin Tuxen, Chief Analyst at Danske Bank maintains a bearish outlook for the USD/JPY pair, alebit believes that a dovish strike at the BoJ meeting ending on 23 January will be enough to turn the tide in the short term.

Key quotes:

“USD/JPY sold off last night driven by general USD weakness and weak risk appetite. We still see risk skewed to the downside short term for the cross even if we expect Bank of Japan (BoJ) Governor Haruhiko Kuroda to strike a relatively dovish tone at the BoJ meeting ending on 23 January and downplay the significance of daily market operations while also repeating the BoJ’s inflation overshooting commitment.”

“However, we doubt that a soft stance from the BoJ will be enough to turn the tide for the JPY in the short term. Instead, we reckon that future BoJ actions (e.g. fixed price JGB purchase operation) are likely to be pivotal and could help restore confidence that the BoJ is not about to exit QE.”