USD/JPY: Downside bias as global growth and inflation recede – Danske Bank
17.01.2022, 16:38

USD/JPY: Downside bias as global growth and inflation recede – Danske Bank

Analysts from Danske Bank see the USD/JPY moving lower over the next months. They warn that a significant change in risk sentiment causing US Treasury yields and commodities to decline significantly could take USD/JPY quicker towards 100.

Key Quotes: 

“A rebound in US yields and commodities, in particular oil has weighed heavy on JPY over the recent month, which drove USD/JPY above 116. On broad USD weakness on the back of the December US CPI figures, the cross corrected significantly lower again, though. We see an increasing risk that central banks are forced to tighten significantly to bring demand down while fiscal stimulus wanes, which will move the global economy in to a period with slower growth and less inflation. That will result in flatter yield curves and less pressure on commodity prices including oil. We forecast the cross at 113.5 in 1M, 112 in 3M and 111 in 6M and 109 in 12M.

 “Upside risks to USD/JPY primarily comes from further curve steepening if the global economy moves back in reflation mode because COVID-19 and labour market issues are solved and growth beats expectations. Significant change in risk sentiment causing US yields and commodities to decline significantly could take USD/JPY quicker towards 100.”

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