USDJPY to depreciate over the medium term to 122 at end-2018 - Westpac

Analysts at Westpac explain that after beginning 2017 on a resumed appreciation trend, the yen has partially retraced this year’s gains, and the recent depreciation is principally due to a decline in risk aversion, evident by continued strength in equity markets and the US 10-year bond yield falling back to 2.33%.

Key Quotes

“Economic activity in Japan has picked up of late, driven by an upswing in the manufacturing cycle. Broader Asian growth is aiding exports. However, the story around wages and inflation remains much the same as the last few years. Inflation only returned to annual growth in January after 13 months, while wage growth remains tepid despite unemployment near cyclical lows. As such, monetary policy is set to remain accommodative. Indeed, in a speech on May 10, BOJ Governor Kuroda reaffirmed “a strong commitment that the Bank will continue expanding the monetary base until the year-on-year rate of increase in the actual CPI exceeds 2 percent and stays above that level in a stable manner”. With this in mind, and given developments in the US, we see USDJPY depreciating over the medium term to 122 at end-2018.”