Synopsis:

Danske Bank maintains a bearish outlook on USD/JPY, projecting a gradual decline toward 140 over the next 12 months, driven by narrowing rate differentials, a continued Fed easing cycle, and potential further BoJ hikes. The JPY’s resilience during recent tariff-related volatility and its appeal in risk-off environments also bolster the case for yen strength.

Key Points:

1️⃣ Narrowing Rate Differentials to Support JPY 📉

• Japanese rates have risen relative to G10 peers in 2024.

• A Fed easing cycle and possible additional BoJ hikes should narrow the US-JP rate spread further.

2️⃣ JPY Shows Resilience to Trade Risk Headlines 🇯🇵

• Unlike other G10 FX, JPY has held firm despite tariff threats, reinforcing its safe haven appeal.

3️⃣ Risk-Off Sentiment Adds to JPY Support 🛡️

• JPY continues to benefit during periods of global market stress, enhancing its defensive profile.

4️⃣ Revised USD/JPY Targets: Gradual Decline 📊

• 1-month: 148

• 3-month: 145

• 6-month: 143

• 12-month: 140

Conclusion:

Danske sees further downside in USD/JPY, driven by relative monetary policy shifts, safe-haven demand, and structural rate convergence. The pair is now forecast to fall to 140 over the next year, with near-term targets of 148, 145, and 143 as the macro backdrop shifts in favor of the yen.