Report4 January 2018Updated one year ago

JPY: Finely balanced

Frankly, we’re a bit disappointed that the JPY did not fall further on the crosses in 2017. True we saw a nice 7-10% rally in the Europe/JPY crosses but we were expecting a little more

Executive summary
  • The window for much further upside in USD/JPY should slowly close in 2018. The best chance for a rally will probably be in 1Q18 when US Treasury yields rise.
  • BoP position looks finely balanced, where Japan’s growing current account surplus is being re-cycled offshore via FDI outflows. Portfolio flows will be key.
  • Taking a view on real yield spreads will be key for the USD/JPY trajectory. We suspect at JPY real yields rise later in the year, as inflation expectations fall.

This report is part of our 2018 FX outlook published December 2017