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Yen has already priced in all the bad news – DBS

FXStreet (Barcelona) - The DBS Research Team downgrades their forecast for the Yen and believe that the pair has already priced in a lot of bad news within a short period of time, having risen from 102 to around 119 between August-November.

Key Quotes

“We have downgraded our forecasts for the Japanese yen. Over the next 12 months, USD/JPY is now seen trading at a higher and wider 110-120 range vs our previous 105-110 projection. Like consensus, we believe that the yen has already priced in a lot of bad news within a short period of time.”

“Having risen to almost 119 from 102 in August-November, the market is wary that the one-sided bets favoring yen depreciation risk voter backlash at next month’s snap election”

“Effectively, the snap election is not viewed as a confidence vote on PM Abe, as much as it is a referendum on Abenomics. PM Abe and his cabinet are mindful that over the past two years, consumers and small businesses are now paying a higher sales tax of 8% instead of 5%, while having to live with a yen that has lost more than a third of its value since late 2012. The opposition Democratic Party of Japan (DPJ) has already targeted the weak yen as one of its platform to narrow the ruling coalition’s majority.”

“One final thing. After the 1997/98 Asian crisis, this is the largest deviation be¬tween USD/JPY and the ratio of the Fed/BOJ balance sheets.”

“Moreover, a Reuters survey in October found that Japanese firms wanted the government to act when USD/JPY hit 115-120. Hence, it was unlikely coincidence that Finance Minister Aso warned on 22 November that the yen’s rapid depreciation had been undesirable of late.”

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