USD/JPY: Laggard BoJ reinforces expectation of yen softness next year – CIBC

Analysts at CIBC forecast the USD/JPY pair at 115 by the end of the first quarter and at 116 by the end of the second quarter. They see the Bank of Japan (BoJ) as a limitation for the yen. 

Key Quotes: 

“Contingent to the unwind in JPY shorts and rebound in Yen valuations has proved to be the correction in USTJGB spreads. Beyond external risk sentiment which risks influencing risk barometers such as AUD/JPY, we would continue to view UST-JGB dynamics as remaining integral to USD/JPY performance.”

“We do not anticipate that the unwind in foreign asset purchasing appetite will persist. Indeed, we expect continued interest in exporting capital across the year ahead, omicron risks notwithstanding.”

“We expect the BoJ, in line with the ECB and SNB, to remain as a policy laggard. Indeed, it seems increasingly likely that rates will remain at current levels through 2023. While the BoJ stand ready to do more in terms of stimulus, in reality the onus for stimulus is more likely to fall on fiscal action from the new Kishida administration. Look for the government to approve a new JPY 36trn supplementary fiscal budget in the current Parliamentary session. Those measures should provide at least some support against external headwinds, but are unlikely to be sufficient to boost JPY valuations.”