Standard Chartered’s USD/JPY Forecast: Yen Weakness Persists with 145 Target in 3 Months
Original article by James Elliot | Source: Exchangerates.org.uk
As global markets continue to navigate uncertainty on interest rate paths and economic trajectory, currency strategists have been refining their outlooks. One such forecast drawing significant attention comes from Standard Chartered, which predicts a sustained period of Japanese yen weakness against the US dollar.
According to the bank’s recent analysis, the USD/JPY exchange rate is expected to remain skewed to the upside in the near term, with a target level of 145 within three months. Beyond this horizon, the forecast indicates room for yen appreciation as macroeconomic and policy conditions evolve.
Market Sentiment and Risk Appetite
– Standard Chartered recognizes that recent fluctuations in the USD/JPY pair have been largely driven by shifting risk sentiment and economic indicators.
– The yen has historically appreciated during periods of risk aversion, given its status as a safe-haven currency. However, the current environment doesn’t offer sufficient catalysts for sustained JPY strength.
– Investors appear to be pricing out fears of a deeper global recession, thereby reducing inflows into safe-haven assets like the yen.
– In the short term, broader risk appetite and real rate differentials are favoring continued dollar strength.
Yen Weakness Anchored by Policy Divergence
A major theme in the USD/JPY forecast is the persistent divergence in monetary policy between the US Federal Reserve and the Bank of Japan (BoJ).
– The Federal Reserve’s ongoing battle with inflation has led to relatively higher interest rates, which remain sticky even as inflation shows tentative signs of easing.
– On the other hand, the Bank of Japan continues to adopt an ultra-loose monetary policy, with limited appetite to tighten policy significantly.
– The yield differential between US Treasuries and Japanese government bonds remains wide, directly impacting currency flows.
– The BoJ is expected to maintain supportive policy settings, particularly in the face of fragile domestic inflation and growth trends.
As a result, Standard Chartered sees very little chance for the JPY to strengthen against the dollar in the next few months.
Short-Term Technicals Support a Stronger Dollar
Technical indicators have also been used to support the forecast, showing favorable positioning for a sustained move towards 145 in the USD/JPY currency pair.
– Recent sessions have shown consolidation around the 140-142 range, often interpreted as staging ground for a breakout higher.
– Market positioning data points to continued demand for USD/JPY long positions, particularly among institutional investors betting on persistent policy divergence.
– Any pullbacks in the dollar are viewed as tactical buying opportunities rather than signs of a long-term reversal.
US Growth and Labour Market Resilience Bolster USD Position
– Standard Chartered highlights that recent economic data from the US points to a resilient labor market and better-than-expected GDP trends.
– This economic strength diminishes the urgency for the Fed to cut rates aggressively, compared with other developed economies facing more pronounced slowdown risks.
– As long as the US retains its relative growth outperformance, the dollar is likely to attract continued capital inflows, bolstering its value against the yen.
Energy Prices and Trade Dynamics
Exchange rate forecasts also consider structural elements like energy trade dynamics, especially critical for an import-reliant economy such as Japan.
– Japan is a major importer of oil and other energy commodities, most of which are priced in dollars.
– Rising oil prices translate to greater demand for USD from Japanese importers, which indirectly weighs on the yen.
– A strong dollar makes imports more expensive for Japan, adding pressure to both inflation trends and the balance of payments.
However, Japan has been partially able to absorb these effects through subsidies and fiscal support, delaying the full impact of higher import costs.
Room for Medium-Term Yen Recovery
While the short-term view indicates persistent dollar strength, Standard Chartered is relatively more constructive on the yen further out. The bank sees potential for JPY to appreciate beyond the
Explore this further here: USD/JPY trading.