USD/JPY after US-Japan summit – Deutsche Bank

Strategists at Deutsche Bank analyze the outlook for the USD/JPY pair following Trump-Abe Summit, arguing that risk remains to the downside amid uncertainty surrounding the US fiscal and monetary policy expectations.

Key Quotes:

“The summit has undoubtedly reduced concerns about politically triggered yen appreciation to an extent. We now expect US fiscal and monetary policy expectations to firm up downside support for USD/JPY in the near term. Fed Chair Yellen is set to testify before the Upper and Lower Houses on Tuesday and Wednesday this week. We think Yellen will avoid giving a clear signal on the next hike at this point, while maintaining the possibility of three hikes this year.”

“We see firmer near-term downside support for USD/JPY within the 110-115 range, shifting to 115-120 within 3-6 months as US fiscal and monetary policy advances. If the full range of promised fiscal policies is introduced over the next 1-2 years we would see this as consistent with a USD/JPY of 120-125, but this range would be highly sensitive to political developments. The Japanese government could verbally intervene to slow yen depreciation if USD/JPY showed signs of breaking above 115-120.”