USD/JPY: Equity Correction A Key Risk; Where To Target? – Danske

Danske Bank FX Strategy Research notes that USD/JPY remains highly correlated with yields on 10-year US government bonds and risk appetite.

“A rise in geopolitical tensions could be JPY positive but need not be so if this derives from North Korea. Continued equity-commodity markets decoupling poses downside risks to USD/JPY if equity markets start to correct,” Danske argues.

However, Danske expects relative rates to move in favor of USD to outweigh the underlying fundamental USD/JPY depreciation pressure stemming from valuation and current-account flows.

In line with this view, Danske only sees a modest USD/JPY appreciation towards 112 in 1-3 months.

Source: Danske Bank Research

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