Synopsis:

Danske Bank expects USD/JPY to decline gradually toward 130 over the next 12 months, with a near-term target of 138 in one month. Support for the yen comes from narrowing rate differentials, safe-haven demand, and resilient Japanese yields.

Key Points:

• Gradual Yen Strengthening Expected:

  • One-month target: 138

  • Three-month: 136

  • Six-month: 133

  • Twelve-month: 130

• Rate Differentials Driving the Move:

  • Relative rise in Japanese yields has reduced the appeal of USD/JPY carry trades.

  • Continued Fed rate cuts expected to contrast with potential BoJ tightening.

• Safe-Haven Flows Supporting JPY:

  • Ongoing global risk-off sentiment favors traditional safe-haven currencies like the yen.

  • JPY has shown greater resilience than other G10 peers to recent tariff headlines.

Conclusion:

Danske maintains a bearish USD/JPY outlook with a forecasted decline to 138 in the short term and 130 by mid-2025. Yen gains are expected to be driven by narrowing global rate spreads, Fed-BoJ policy divergence, and robust demand for safe-haven assets.