The firm had previously forecast USD/JPY at 108.00 by the end of the year

USD/JPY D1 04-07

On the change, the firm cites more favourable real yields and a more dovish Fed as the reasons for the lower forecast in USD/JPY while also seeing the pair moving towards 94.00 by the end of 2020 (previous forecast had it pinned for 98.00).

The firm's global head of currency strategy, Hans Redeker, says that the yen has been strengthening as nominal and real yield differentials have become less supportive of the dollar due to US rates dropping faster than their European and Japanese peers.

Adding that the current environment is similar to that in early 2016 when inflation expectations fell faster than nominal yields. As such, the firm is adding long yen positions to its recommended portfolio with the latest being long JPY/KRW positions, in addition to existing shorts on USD/JPY and GBP/JPY.

There have been growing calls from firms arguing for yen strength in 2H 2019 and with the fundamental backdrop in markets, it doesn't come as much of a surprise. The only real worry is that when a consensus is this strong, positioning risk tends to be an issue for traders as that can lead to squeezes and sharp retracements.

However, I reckon this has a similar feel to when everyone was arguing for dollar strength throughout the whole of last year. There'll no doubt be a lot of noise in the short-term but unless global economic conditions start improving and/or the Fed grows less dovish (this will have an impact on yields), it's tough to argue for any other currency besides the yen that will remain attractive in the coming months.