© Mark Williams
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It mostly depends on what happens to the global fears over ‘Brexit'. If we see a big pick up in risk aversion, perhaps on worries about the outlook for the wider EU, then the Yen will almost certainly strengthen further. I suppose, in such circumstances the Ministry of Finance in Japan would intervene and try to slow the Yen's rise; however, it would not be able to prevent the Yen from strengthening. Nevertheless, that is not our central scenario. Instead, I actually think that global concerns about ‘Brexit' should fade fairly soon and it will be more of monetary policy divergence that will determine the outlook for the currency. At the moment, we are expecting more monetary loosening from the Bank of Japan coming in the nearest future, probably even in July, and if we are right about that, then the Yen should start weaken again.
What will be the major drivers for JPY throughout the same period?
There will be two drivers: one is what happens to the risk appetite, which is obviously very difficult to predict given its the nature and worries over UK's exit from the EU, that will lead to another surge in safe-haven flows into Japan. The major factor, however, will be monetary policy divergence, as I expect the Bank of Japan to loosen again very soon, while the Fed is slowly edging towards tightening.
What are your forecasts for EUR/JPY and USD/JPY currency pairs for the Q3 of 2016?
We believe that the Yen will weaken towards maybe 120 by the end of this year. If we talk about the third quarter of this year, then we would see the Yen fluctuating at around 110-115.