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USDJPY at 140.00 Next Year: Capital Economics

Technical Bias: Slightly Bullish


  • USDJPY little changed at 1.2160.
  • Capital Economics forecasts the USDJPY to rise to 140.00 next year in anticipation of further monetary easing by the Bank of Japan.

The USDJPY is likely to break out to unprecedented highs in the long-run, as the Japanese currency continues to weaken by continued monetary easing by the Bank of Japan.

The USDJPY could approach 140.00 by 2016, according to the latest forecast provided by Capital Economics, an independent macroeconomic research firm headquartered in London. This wasn’t the first time the firm issued a stark warning for the Japanese yen. Last month analysts at the firm said the USDJPY could approach 140.00 by the end of 2015. Capital Economics would later say that 130.00 was the likely destination for the pair at the end of 2015, given the BOJ’s reluctance to ease monetary policy in the early part of the year.

The USDJPY was little changed in Monday’s Tokyo session, as it attempts to break through a critical six-month headwind. The USJPY gained 0.8 percent last week and was trading at 121.60 in Monday’s early session. The pair is well supported at 120.93 and faces initial resistance at 121.88.


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Diverging Monetary Policy

The Bank of Japan and United States Federal Reserve are clearly on divergent paths with respect to monetary policy. The yen is expected to depreciate further in the coming months as the BOJ outlines added measures to stimulate the economy. There appears to be a large disconnect between the BOJ’s upbeat inflation expectations and reality, which continue to support speculation for additional stimulus measures.

BOJ Board members forecast GDP growth of 2 percent for fiscal year 2015 and 1.5 percent for fiscal year 2016. Both scenarios are well above the country’s potential growth rate, according to Capital Economics. Sluggish GDP growth in the first half of this year could provide the necessary catalyst to ease monetary policy further in the near-term.

For his part, BOJ Governor Haruhiko Kuroda has stated he will not hesitate to implement added QE should inflation and GDP continue to miss expectations.

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