USD/JPY: Yen appreciation to continue - CIBC

Jeremy Stretch and Bipan Rai, analysts at CIBC Capital Markets, consider that the USD/JPY will likely move lower over the next months on the back of an appreciation of the Japanese yen. They forecast USD/JPY at 107 by the end of Q1 and 106 in Q3. 

Key Quotes: 

"As of December, we have seen broad-based JPY appreciation. Of course, that’s partly attributable to themes that are now causing some degree of investor uncertainty. Ongoing trade negotiations, the fall in oil prices and US equity valuations, Brexit, and China’s slowdown are key examples. While some of these concerns have eased, the JPY has remained bid to a degree.”

“Over the medium term, we remain constructive on the JPY. Although CFTC data has not been released due to the partial US government shutdown, we expect that markets likely reduced the net short JPY skew in the futures market. That is evidenced by proxies that track the non-CTA market.”

“The current macro environment will be supportive of haven currencies, as the Fed becomes less hawkish and as global growth begins to slow. Slower growth, in tandem with the Fed and the ECB decreasing liquidity will lead to higher cross-asset volatility. Surplus currencies, including the JPY, will perform on a risk-adjusted basis in such periods of higher volatility.”