Flash: USD/JPY has downside risks in coming months - JPMorgan

FXstreet.com (Barcelona) - Despite JPMorgan Strategist still support the notion of a cheaper Yen vs the USD in the medium term, "mainly because of divergent policies between the BoJ and Fed" the Bank's Strategist note, the forecast was nonetheless revised down as follows -- 4Q13: 100 (prev. 105), 1Q14:102 (prev. 106), 2Q14:102 (prev.106) and 3Q14:103 (new forecast).

Key Quotes

"First of all, inaction by the Fed at last week’s FOMC should be USD negative. With a further rise in US rates pushed back until late 2013/early 2014, USD probably fails to rally against any currency, hence weighing on USD/JPY."

"Additionally, the JPY faces significant risks of being bought back in coming months, partially because Japanese politics is starting to show its usual unstable nature."

"Secondly, we continue to believe that the TPP poses significant risks for the Abe cabinet. Lastly, Japanese stocks may face strong selling pressure from retail investors in 4Q."

"In all, we think the USD/JPY has downside risks in coming months. However, the JPY will eventually weaken against USD under a low vol. environment and when divergent policies between the BoJ and Fed become clear (we expect BoJ to ease policy further in
Apr. 2014)."