Credit Agricole Research discusses USD/JPY outlook in light of revising up its targets to 106 for end of Q2, and to 105 for end of Q3.
"In terms of European political risks, we think it unlikely that the current extreme circumstances will remain. We also note that our FAST FX model is pointing to US 2Y yields being a stronger driver of the USD/JPY presently rather than the 2s10s spread, which has started to decline again since mid-May. So the former will remain a support for the USD/JPY in the near term, but we expect the latter to drag on the exchange rate in the medium term.
We are therefore revising up our near-term USD/JPY forecasts: our end Q2 forecast to 106 from 104 and our end Q3 forecast to 105 from 104. Otherwise, our forecast profile is unchanged. We maintain the view that USD/JPY heads back to 105 by end-2018 and 100 by end-2019," CACIB argues.