© Esther Maria Reichelt
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At the end of August the Yen appreciated on back of growing global risk aversion. The USD/JPY exchange rate has not yet recovered from that move and since then has been trading around 120. Fundamentally, I think everything still points towards weaker Japanese Yen against the US Dollar while the EUR/JPY should trade largely sideways.
What will be the main drivers for the Yen during the same period?
In Q4 the value of the Yen will mostly be affected by global risk sentiment and speculation about further extension of the BoJ's monetary policy. The decline of the Japanese economy in Q2, weaker demand from emerging markets (in particular Asian economies) and reluctantly low inflation recently strengthened the case for further expansion of the monetary policy. However, BoJ governor Haruhiko Kuroda has stressed in recent weeks that he does not yet see the necessity to expand the monetary policy at the moment. For October 2015 about 1/3 of analysts expect further expansion.
However, we think that a simple extension of the QE program will only have limited effects as the implementation of the first arrow of Abenomics and the extension one year ago did not succeed in reviving inflation. However, for more aggressive measures it is, in our opinion, still too early.
Nevertheless, in particular if we see some further currency appreciation, speculation about further monetary policy measures should prevent the appreciation from being sustainable.
What are your forecasts for EUR/JPY and USD/JPY for Q4 of 2015?
We see the USD/JPY to be at 125 levels and we expect the EUR/JPY trading at 135 levels in Q4 of 2015.