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How high will USD/JPY go? – Rabobank

FXStreet (Barcelona) - “USD/JPY has made a habit out of crashing through our forecasts recently” says Jane Foley, Senior Currency Strategist at Rabobank, as USD/JPY rallies to a 7 year old high overnight just a whisker below 119.00.

Key Quotes

“The sharp deterioration in Japan’s growth and inflation outlook since the 3% hike in the consumption tax hike in April would appear to provide strong justification for a sharply higher value of USD/JPY. That said, according to the OECD’s purchasing power parity estimate, the yen is now undervalued vs. the USD.”

“Going forward, there is the possibility that the Fed will push back against the stronger tone of the USD. This afternoon’s release of US October CPI data is likely to confirm a lack of strong inflationary pressures in the US. The market median for the release stands at a moderate 1.6% y/y.”

“Yesterday’s release of the FOMC minutes did unveil a vigorous debate among Fed officials over the weight that should be given in forward guidance to signals that inflation expectations were slipping. However, as it stands there has been no real push back either by the Fed, corporate America of the US Treasury against the rebound in the value of the USD during the second half of the year.”

“Although there is risk that continued USD strength could push back the timing of the Fed’s first hike and shake out long USD positions, on the assumption that US growth continues to outperform we see further potential for medium-term USD gains. We have revised up our 12 mth USD/JPY forecast to 125.00”

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