USD/JPY
We predict moderate weakness of JPY in the short-term. We see the top side of USD/JPY 86. To our forecast, USD/JPY will be JPY 86 in June, then the currency pair will slowly fade to JPY 82 by March of next year.
EUR/JPY
As to EUR/JPY, we expect the Yen strengthening against the Euro. Currently we have top reading of JPY 115. As the Euro is not very strong now, we see the pair heading to JPY 136 by September 2012, and it will be capped around there. In the long-term we anticipate EUR/JPY coming off around to EUR 114 by the end of March 2013.
AUD/JPY
We have quite a similar outlook for the Aussie. We see the Yen capped at around JPY 80 in short-term. We anticipate AUD/JPY has to make it upside once it gets 108-110 range. We see the AUD/JPY coming off from 80 to around 77 by the end of the year.
Main drivers for currencies' movements
Yen's weakness against the US Dollar is determined by the US Treasury moves and the Bank of Japan being aggressive in Quantitative Easing. However, the broad message is that the QE of the BOJ is still of a much smaller scale than other central banks are conducting. The US Treasury move is basically done for now. We do not see much upside the US Treasury, because the Fed is not going to be more hawkish than they are now. We think that the foreign bond investment by Japanese investors, an outflow of capital from Japan to outside, will slow down. The Japan's trade deficit effect on FX will be limited. Therefore, the Yen weakness will reduce in the second half of the year.
The outlook for Aussie is similar to the Euro, as we predict a weaker AUD during this year. Once concerns about soft landing of China are reduced, we see Euro versus risk correlation coming down and Eurozone becoming more stable at the end of the year. Central banks are buying Euros for reserve diversification, which will support the Euro in the currency battle. This is likely to push the Euro to the 1.36 limit.
As concerns Aussie, there will be no rate cut from Australia coming into support. The Aussie will be pushed higher form the current level to 1.08-1.10.