Credit Suisse discusses the JPY outlook and maintains a bullish bias in USD/JPY, targeting 118 over the medium-term.
"In terms of fundamentals, the following factors encourage us to stick with our view of JPY as the funding currency of choice:
1. BOJ balance sheet policy - last week as 10-year JGB yields approached the 0.25% limit set by its current 0.00% +/- 25bp YCC target, the BOJ announced an unlimited fixed rate bond buying operation for 14 February. This led to an immediate drop in yields as the market quickly realized there is little point in testing the BOJ’s mettle," CS notes.
"2. Weak Japanese inflation – the market is not expecting calendar year Japan ex-food CPI to rise beyond 0.8% in 2022. Even with respect to headline inflation, CS economists expect high prints around 1.0% in Q2 and Q3 if food prices are strong (link). But they still see a large negative output gap (around 3% of GDP) and an absence of wage pressures keeping price gains subdued," CS adds.
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