USD/JPY: Buying on declines - Deutsche Bank

Taisuke Tanaka, Strategist at Deutsche Bank, explained that they see the Bank of Japan keeping the current policy unchanged. They see the USD/JPY pair moving to the upside in the medium-term. 

Key Quotes: 

“We think the BoJ will likely decide to maintain current policy tomorrow. Japan's economy is improving gradually, and share prices and the USD/JPY have also recovered much of the ground lost during Trump trading. We think the BoJ will be able to generate bull pressure on the USD/JPY if it continues to cap growth in long-term JGB yields under YCC policy as the outlook for rate hikes in the US strengthens.”

“However, while it is difficult to imagine that the BoJ would soon reverse monetary easing owing to US pressure, we think fiscal and monetary policy in the US itself would likely rapidly strengthen the dollar-bull impact. We think pressure on the BoJ would ease temporarily if the USD/JPY fell owing to checks by the US. We at least see no scenario for the USD/JPY to turn bearish.”

“We assume the USD/JPY to move around a core range of 112-115 in the near term and expect continued upside in the medium term, and accordingly recommend buying on decline. It will probably be easier to calculate the USD/JPY's rebound capacity and timing if we can also interpret how various market factors are likely to accelerate the next US rate hikes from June.”