Maybank FX Insight: JPY: Break Out - 2 Jun 2015
The rapid rise in the USD/JPY to
the 125.00-levels at the point of writing is a high not seen since 2002. The
leg up was possibly triggered by the IMF announcement on 22 May, which called
for bolder measures to reinforce the Three Arrows of Abenomics, highlighting
the downside risks to the economy and the goal of achieving its 2% inflation
target.
The climb of the stock markets (the
strong positive relationship with the USD/JPY continues to hold) and the
resurgence in the dollar has helped to keep the USD/JPY supported. Also,
rebuilding of long positions in the USD/JPY, which had unwound because of
earlier dollar concerns, could add to the upward trajectory of the USD/JPY
ahead. Widening spreads between US Treasuries and Japanese Government Bonds
(JGBs), reflecting policy divergence between the US and Japan, should bolster
the USD/JPY as well. We also expect BOJ to add to their current easing measures
in Oct and further purchases of overseas assets to lift the pair higher.
As a result of these market
developments, we now expect the USD/JPY to accelerate at a faster pace than
before to 124 (previous: 120) by end-2Q 2015 and then to 128 (previous: 124) by
end-3Q before ending 2015 at 132 (previous: 126). As for the SGD/JPY, given its
close correlation to the USD/JPY, the SGD/JPY could be poised to climb higher
with our expectations of a jump in the USD/JPY in the quarters ahead. In the
near term, daily/weekly oscillators are nearing overbought areas which could
suggest possible risk of pullback and a pullback could see the pair revisit
89.50.
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