EUR/JPY seen at 119 in 6M - Danske

According to analysts from Danske Bank, EUR/JPY will remain sideways near-term but they see the pair moving to the upside longer term.

Key Quotes:

“With the ECB and BoJ on hold for now, we see the cross trading sideways near term. Longer term, EUR/JPY should move higher, as the EUR remains undervalued. We target EUR/JPY at 113 in 1M, 114 in 3M, 119 in 6M and 123 in 12M.”

“At the September MPC meeting, the Bank of Japan (BoJ), in line with our expectations, did not add new monetary easing. However, as a result of the comprehensive assessment of its monetary policy, the BoJ introduced a new and more flexible monetary policy framework (QQE with yield curve control) in which it moves away from strictly targeting an increase in the monetary base to targeting the 10-year Japanese government bond yield.”

“ Underlying support for JPY stemming from fundamental flows is likely to remain intact, but we believe the effects are diminishing as the JPY is no longer undervalued. Furthermore, we expect the market to continue to price in a future BoJ rate cut, as the BoJ explicitly said that the interest rate can be cut further if needed. This will dampen the JPY appreciation pressure.”