USD/JPY: Yield differentials to be a tailwind for the Yen during the year – Danske Bank

Economists at Danske Bank view narrowing rate differentials between Japan and the G10 to favour the Japanese Yen (JPY) over the course of this year.

USD/JPY to steadily decline below 140.00 on a 12M horizon

We forecast USD/JPY to steadily decline below 140.00 on a 12M horizon. This is primarily because we expect limited upside to US yields from here. Hence, we expect yield differentials to be a tailwind for the JPY during the 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.