Danske Bank: USDJPY to reach 137 in a month, 139 in 3 months and 128 in 12 months

The USDJPY currency pair ended last week hovering around 136.70. Analysts at Danske Bank predict that USDJPY will fall to 137 by mid-January and to 139 in three months. In a year, it could drop to 128.

According to the specialists, upside risks to the USDJPY pair come from the ongoing pressure for higher global yields. Intervention is likely to limit sudden upside moves. The slowdown in the global economy could turn into a severe recession, causing speculators to unwind short positions in the yen. In such a case, flatter yield curves and cheaper energy could quickly become a tailwind for the third-most traded currency.

The key driver of USDJPY is a global inflation outlook and US treasury yields. After low US CPI data for October and November, the yen strengthened significantly. But the currency remains weak in a historical perspective. With the US labor market still in good shape, analysts continue to see pressure on the Fed to tighten further. Increased energy prices, in turn, will weigh on the yen in the short term. The specialists expect strengthening of the Japanese currency.