Economists at Danske Bank view narrowing rate differentials between Japan and G10 to favour the JPY over the coming year.
Yield differentials to be a tailwind for the JPY over the coming year
We forecast USD/JPY to steadily decline below 135 on a 12M horizon. This is primarily because we believe that long US yields have reached their peak, although we do not expect a lot of downside from here.
We expect yield differentials to be a tailwind for the JPY over the coming year, as G10 central banks, except the BoJ, are likely to commence rate cutting cycles. In addition, historical data suggests that a global environment characterized by declining growth and inflation tends to favour the JPY.
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