The Bank of Japan (BoJ) will face increasing political pressure if the Japanese yen slides further, say analysts from Danske Bank.

They forecast the USD/JPY pair at 126 in one month, 125 in three months, 123 in six months and 119 in a year.

Key Quotes:

“Bank of Japan (BoJ) has fiercely defended its yield curve control as the global pressure for higher yields has also reached Japan.

Within a short period of time, the BoJ has twice deemed it necessary to step in and buy JGBs to keep the 25bp ceiling on the 10- year yield.


The additional supply of JPY to the market adds to JPY headwinds. The BoJ has continuously communicated it does not see a weak JPY as a problem.

On the contrary, it boosts exporting businesses’ profits. The BoJ blames rising living costs on high energy prices and not FX.

That said, JPY at its weakest since the early 1970’s could become a political issue with upper house elections this summer. BoJ will face increasing political pressure, if JPY slides further.”

“Higher long US yields have been the most important driver of USD/JPY for a while now.

The increasing divergence between US treasury yields and JGBs has kept increasing as the BoJ has defended its yield curve control.

As one of the world’s biggest energy importers, high energy prices add to the pressure. In the short run, the global pressure for higher yields and the global energy crunch will keep weighing on JPY.

Looking further ahead, we do expect the pressure on JPY will wear off as the US curve inverts. We forecast the cross at 126 in 1M, 125 in 3M, 123 in 6M and 119 in 12M.”

“Upside risks to USD/JPY comes from a continued high pressure on commodities driving inflation and global yields higher.

USD/JPY close to 130 will trigger more speculation on Tokyo interference, though. With the short speculative positions in JPY in mind, indications of a global inflation peak can on the other hand quickly trigger a drop in USD/JPY.”