USD/JPY: Targeting 116 In 1-Month On Trumponomics, Fed And Reflation
We still expect the JPY to continue suffering in an environment with rising global bond yields and a higher oil price. We expect USD/JPY to increase further in coming months, as investors’ focus could return to ‘US tax policies’ now Steven Mnuchin has been confirmed as US Treasury Secretary. As short yen positioning is very stretched, additional yen weakening is likely to unfold gradually and the stretched positioning warrants a larger USD/JPY downside risk and higher sensitivity to investors’ risk appetite.
We target the cross at 116 in 1M (previously 117) and 118 in 3M (unchanged).
Longer term, we expect USD/JPY to stabilise, targeting 118 in 6-12M (unchanged), as we expect portfolio outflows out of Japan to counter the underlying appreciation pressure on JPY stemming from fundamentals.