Synopsis:

Danske Bank forecasts a steady decline in USD/JPY towards 135 over the next 12 months, driven by narrowing yield differentials and a global environment of weaker growth and subdued inflationary pressures.

Key Points:

• Narrowing Yield Differentials:

  • Danske anticipates that the narrowing yield differentials between Japan and G10 economies will support the JPY throughout the year.

• Impact of Fed Cuts:

  • The expected Fed rate cut in September is likely to put downward pressure on global yields, which should provide additional support for the JPY.

• Global Economic Environment:

  • Weaker growth and subdued inflationary pressures in the second half of the year are conditions that have historically favored the JPY, reinforcing the forecast for a decline in USD/JPY.

Conclusion:

Danske Bank expects USD/JPY to steadily decline towards 135 over the next year, supported by narrowing yield differentials, anticipated Fed cuts, and a global environment conducive to JPY strength.