CURRENCY WATCH
FX
the yen against the dollar towards USD/JPY 115-117-118 on a 6m-12m-24m horizon. Risks are skewed slightly upwards, i.e. the yen could depreciate less than expected, in particular if risk aversion mounts back up as a result of the (re-) emergence of geopolitical tensions.
Fig. C – Diverging EUR/JPY and USD/JPY trends in the summer months …
Against the euro, on the other hand, the yen weakened over the summer months, hitting new lows for 2017, and dropping from EUR/JPY 125 to 134 (Fig. C). In this case, the marked upswing of the EUR/ USD prevailed (Fig. D) with the underlying widespread weakness of the dollar amplified by the euro’s own strength, stemming from the approaching start of the ECB’s normalisation process.
Fig. D – …EUR/JPY tracking the EUR/USD
continues to carefully monitor the movements of the exchange rate and their impact on growth and inflation, also in reference to the fallout on the markets and on the economy of developments on the North Korean front, explaining that for this reason as well, the BoJ is ready
to intervene adequately if necessary.
As the Fed proceeds with its hike cycle, and the BoJ, simultaneously and by contrast, keeps curve control in place, the prospect of yield differentials vs. the US widening further supports expectations for a further decline of
Beyond the near term, divergent monetary policy conduct between the BoJ and the ECB should result in a further weakening of the yen against the euro as well, towards EUR/JPY 140-145 on a 12m-24m horizon. In the near term, between now and the end of the year, the Japanese currency could express a partial upward retracement against the euro, in function of a possible – partial – downside retracement of the EUR/USD. Risks
to the forecast scenario for
the EUR/JPY cross rate are more balanced, as the “disruptive” factors which could push the USD/ JPY exchange rate in one direction, would lead the EUR/USD in the opposite direction.
FX TRADER MAGAZINE October - December 2017 23
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