USD/JPY to remain sluggish for now before bullish mid-term comeback – Deutsche Bank

Taisuke Tanaka, Strategist at Deutsche Bank suggests that they believe USD/JPY markets will remain sluggish for some time.

Key Quotes

“First, the yen, as the currency of the world's largest creditor nation, is likely to rise in immediate reaction to risk-off sentiment from East Asian geopolitical risk. Second, US economic and price indicators remain mixed or soft, and rate hike expectations have retreated. (The projected probability of a December rate hike is around 25%, and the 5y UST yield has fallen back to 1.75%.) Third, IMM data indicate that overseas speculators still hold a relatively high level of yen short positions, and fears remain rife that an unwinding of these positions could put upward pressure on the yen. Furthermore, if there is not continued bright new after the holiday season, USD markets could be unnerved by the specter of the US government debt cap problem looming in late September.”

“Nevertheless, the USD/JPY is holding firmly at ¥109 despite these bearish factors, suggesting the continued presence of quiet buyers such as Japanese investors. As seen in today's Japan's GDP figures for 2Q 2017, which found real growth up an annualized 4.0% (consensus forecast: +2.5%), yen-boosting risk-negative factors stemming from the domestic fundamentals would appear unlikely at this point. We retain our forecast that the USD/JPY will reach a ¥115-120 range into 2018 based on an optimistic assumption that geopolitical risk will not be realized and our basic view that the US economy will remain strong. Still, we believe that USD/JPY bulls, including us, will have to wait patiently for now.”