USD/JPY: Commodity sell-off and falling US rates to drive pair lower – Danske Bank

According to analysts at Danske Bank the USD/JPY will drop toward 107.00, before recovering to 110.00 on a twelve month horizon. They expect global sentiment to remain the key driver in the pair. 

Key Quotes: 

“We expect global sentiment to remain the key driver in the cross as risk-off, commodity sell-off and falling US rates run together and amplify each other to take USD/JPY lower.”

“Drivers set to take JPY back above 110 include (1) an inflation-driving Fed cut, (2) strong BoJ easing and/or (3) improving global macro.”

“Events to take JPY below 105 include (1) declining commodity prices, (2) continued deterioration of global demand and (3) negative news from the trade war, especially as optimism has been broad based in recent months.”

“We change our USD/JPY forecast from 106 to 107 on 1M, 3M and 6M, which reflects the stabilisation in global demand at a low level. However, Brexit and trade talks have also taken a more benign direction. On a 12M horizon, strengthening global demand continues to be our base case, which shifts USD/JPY to 110.00.”