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JPY: Still vulnerable but downside limited - JPMorgan

FXStreet (Bali) - JP Morgan FX Strategists are still expecting JPY to weaken due to its deteriorated fundamentals although they see the downside limited, thus they keep their target of 109 by year-end and 110 as of Q3 2015.

Key Quotes

The yen has been an outperformer versus most other currencies. Behind this move are a number of cross-currents:(1) lower oil prices that might support the yen through an improving trade balance; (2) lower inflation that might undermine the yen by raising expectations of move BoJ easing; (3) more aggressive risk-taking by GPIF that weakens the yen through capital outflows; and (4) rising political uncertainty that threatens fiscal consolidation through postponement of a consumption tax hike to 10%.

On net, recent developments have little impact on our current USD/JPY call. We still believe that JPY will weaken due to its deteriorated fundamentals but downside will be limited. Thus, we remain comfortable with the current call (our target is 109 as of end-this year and 110 as of Q3 2015). However, it is fair to say that recent developments have increased uncertainties surrounding our baseline.

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