USD/JPY to drop below 130 on a 6-12M horizon – Danske Bank

The JPY has suffered not only from a dovish Bank of Japan but also from the general rise in global yields. This has lifted USD/JPY to new year highs. Economists at Danske Bank analyze the pair’s outlook.

USD/JPY seems fundamentally overvalued

We think the USD/JPY seems fundamentally overvalued and combined with potential monetary policy tightening; we expect the cross to drop below 130 on a 6-12M horizon. 

We think the BoJ still is underestimating inflationary pressures in Japan, and the persistence of underlying inflation will continue to build pressure on BoJ’s ultra-dovish stance.