Yen starts the year strong, where to now?

The Japanese yen has come out firing with all guns blazing since the start of the year which was also helped by the flash crash last week which saw investors pie into the currency as a safehaven. Now the question is will the Yen continue to rally in 2019 or is this good start to the year just temporary?

 

 Analysts from around the globe are divided on the direction as the year unfolds.

Deutsche Bank

  • The bank is keeping its short USD/JPY recommendation and betting the yen could hit the 100 mark this year.
  • “While the flash crash move has largely been faded, we think the drivers of yen strength go far beyond this,” write strategists including George Saravelos in a research note.
    • “A structural shift in Japanese investor behavior -- from repatriation to increasing hedges -- will support the JPY this year.”
    • The bank estimates fair value for the yen near 100.

Russell Investments

  • “If there’s a severe slowdown in the U.S. economy and the market sniffs out the Fed’s interest rate peak, 100 would be very attainable,” said Van Luu, head of currency and fixed-income research at the firm.
    • However, he sees this as more likely to play out in 2020, with recession risk more elevated for next year.
  • The asset manager has a large overweight on the yen versus other Group-of-10 currencies in its multi asset funds.
  • Russell Investments targets 102 by year-end.

Investec Asset Management

  • 100 is “a huge level,” according to portfolio manager Russell Silberston, as it marks the highs seen in the 2016 risk-off scare.
    • “I suspect to breach it in the short term, we need to see a much bigger market panic or unilateral monetary action from the Bank of Japan, both of which seem unlikely to me.”
  • “The first test will be the recent highs around 105. If this is broken on a sustained basis, then an attack on 100 becomes more likely on a pure technical analysis view.”

Janus Henderson Investors

  • “The next level that I’m watching is 108, and any consistent close below that,” said fund manager Ryan Myerberg.
    • Myerberg added he started the year thinking 110 would be the level to watch and “that level didn’t last long”.
  • “In a global growth slowdown, Fed cutting rates, volatility increasing type of world and with a currency as fundamentally cheap as Japanese yen, 100 doesn’t seem like a stretch.”

Credit Agricole SA

  • “Our long-term forecast for the yen is indeed that dollar-yen should revisit 100 by 2020,” said head of G-10 currency strategy Valentin Marinov.
  • “This will be driven by policy convergence, the unwinding of Japanese-yen-funded carry trades and the correction of yen significant undervaluation.”
    • The dollar-yen should be trading closer to or even below the 100 level, he said.
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