According to analysts from Danske Bank, a positive environment for the US dollar should persist in 2019 and keep USD/JPY supported.
Key Quotes:
“The acceleration in Japanese money supply growth and CPI inflation seen in 2016 and 2017 has faded this year. This has also started to carry over to nominal GDP growth. In particular, we think it is important to monitor the slowing growth of the Japanese monetary base, which seems to be at the centre of the development outlined above. The Bank of Japan (BoJ) continues to emphasise its willingness to keep monetary policy accommodative and we expect no changes before the end of 2019 at the earliest. However, its actions are starting to look contradictory as, in our view, slowing monetary growth will not bring the BoJ closer to its inflation aim – furthermore, it could start to become a JPY positive.”
“During the recent selloff in equity markets, the JPY did see some temporary safe haven demand. If negative sentiment returns, the JPY could see renewed support. Another risk to keep in mind is the potential for oil prices to rally again. That in turn would be JPY negative.”
“A USD positive environment should persist in 2019 and keep USD/JPY supported. However, we are vigilant about recent disinflationary red flags in Japan. As a result, we maintain our view on USD/JPY and look for the pair to range-trade at 113-115 over the coming year.”
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