Credit Agricole: We continue to forecast USD/JPY to average 162 in Q3 and 163 in Q4 - FJElite
1. The BoJ’s next rate hike is expected by our Japan economists in mid- 2027 vs market pricing for two-and-half 25bp rate hikes by then.
2. While our US economist expects no rate hikes this year, US economic outperformance will continue attracting capital inflows supporting the USD.
3. Oil prices will remain elevated relative to pre-war levels. Even if the Strait of Hormuz were to re-open (not a given), it will take time to make up for lost supply.
4. Investors will remain nervous about Japan’s fiscal sustainability given that PM Sanae Takaichi is not backing down from her fiscal spending plans.
5. We continue to believe 164 in USD/JPY is the line in the sand for authorities, the recent joint intervention has reaffirmed this view. While Japan and the US will have to use their reserves to support the JPY judiciously, we think they have enough to hold the exchange rate below that level.