USD/JPY: Still at historical highs – DBS

USD/JPY extended its rise above 160 to 161.46 from another increase in US bond yields and a lack of haven appeal after the first round of French elections, senior FX strategist at DBS Philip Wee notes. 

Japanese businesses expect USD/JPY at 144.59 in 12 months

“The better-than-expected Tankan Survey in June should keep hopes alive for a second interest rate hike and provide more details on the plan to reduce JGB purchases at the upcoming Bank of Japan meeting on July 30-31. Corporates expect inflation to hold above 2% over the longer term, i.e., 2.3% over the next three years and 2.2% five years ahead.”

“Despite the Japanese economy contracting by 0.7% QoQ sa in 1Q24, large corporates planned to increase capital expenditure by 11.1% in the current fiscal year ending March 2025. The outlook for the manufacturing sector increased to 14, its strongest since September 2021, while that for the non-manufacturing sector stayed firm at 27 for the third quarter.” 

“Interestingly, Japanese businesses predicted that USD/JPY would decline to 144.59 for the fiscal year ending March 2025.”