USD/JPY: 110 still seen as short-term ceiling – Danske Bank

According to analysts from Danske Bank, the USD/JPY PY have been thrown back and forth by moves in global risk aversion, commodities and domestic fiscal response on the one side (stronger JPY), but also a very weak domestic economy and recently a global stabilisation in risk sentiment (weaker JPY). Looking ahead, they see the second half of the year as the time when USD/JPY could move slightly higher as they expect an economic rebound during the fourth quarter. 

Key Quotes: 

“Our PPP estimate is around 80, i.e. suggesting an undervalued JPY, while our medium term valuation model (MEVA) stands at 108. In our view, USD/JPY is at fair value.”

“Drivers set to take JPY above 110 are likely to relate to a further stabilisation of the business cycle. Events that could take JPY towards 105 again include declining commodity prices, or further deterioration of expectations to global demand. The key event to take USD/JPY lower would likely be a substantial widening of credit spreads, a correction in US equity markets or re-emerging fears related to shutdowns and coronavirus.”

“We continue to expect 112 in 6M and 12M (unchanged), which still reflects our view of a strong USD. EUR/JPY has started to struggle in recent month(s), driven primarily on the back of a declining EUR. This may indeed continue to be the case in the coming months. Near term, we see USD/JPY as trading in 107-110 range.”