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JP Morgan NYSE:JPM revises up its USD forecasts Vs JPY

JP Morgan Friday revised up its USD forecasts Vs the JPY, citing the significant change in perception toward Japanese politics and policies by overseas investors as a major factor.

The bank now expects the USD to trade at JPY 87 at the end of Y 2013, compared with its prior forecast of JPY 79, the house sees the EUR at JPY 117 at end-Y2013, up from the JPY 106 figure it prreviously forecast.

“The extent of the Yen’s depreciation and the rally in the Nikkei may stimulate domestic investors’ risk appetite and encourage self-sustaining capital outflows,” the bank said in a note to client Friday.
Forex Analysis USD/JPY Moving Higher in Light Trade

Most markets are not inspiring during the Christmas Holiday due to the light trade, but the USD/JPY has been the a standout as it continues to move higher.

Last week the pair broke to new Y 2012 highs above 84.20, and this strength carried over after the Christmas Holiday as USD/JPY took out the psych/option related resistance mart at 85.00, and the prior Y 2011 high near 85.50.

Some of the recent push higher is down to the USDs strength lately, but most of it appears to be due to broader JPY weakness overall.

Japan’s new PM Abe is very outspoken about his beliefs that the Japanese government has not done enough to drive growth or boost sentiment, he has promised to do more to stimulate the economy.

He advocates strong monetary policy easing, suggesting the introduction of a 2% inflation target, which implies an unlimited amount of asset purchases, as well as a policy interest rate Zero % or even negative rates to facilitate bank lending.

Plus, Japan’s Finance Minister Aso was on the wires today stating that beating deflation& the strong Yen are priorities and that he will not stick to JPY 44-T bond sales cap.

That said and the note from JPM mentioned above causes another look at where USD/JPY currently stacks up relative to fair value.

While this is a high deviance, it is not uncommon to see it in strong trending environments. Plus, it would not be surprising to see this continue through the remainder of the year while in this thin Holiday market, but keep a keen lookout at the turn of the year as USD/JPY’s recent rally could unwind in Y 2013.