USD/JPY Monthly Fundamental Forecast – December 2015

Outlook and Recommendation

The USD/JPY closed November towards the top of its monthly trading range at 123.12 as the greenback soared the last week of the month as a rate increase in the US remained imminent. The BoJ held rates and policy as the month closed.  The yen will outshine the dollar as next year’s star performer in the US$5.3 trillion-a-day ($7.5 trillion) global currency market, according to Morgan Stanley.

In what it calls an “out-of-consensus” prediction, the bank said it expects Japan’s currency to strengthen to 115 against the greenback at the end of 2016. That contrasts with a median forecast for the yen to weaken 126 per dollar, according to analysts surveyed by Bloomberg.

Morgan Stanley’s top trading recommendations for next year include buying the yen against the British pound, Swiss franc, South Korean won and offshore Chinese yuan, according to a Nov 29 report.

“The yen is the most undervalued of the group-of-10 currencies and is also at an extreme from a historical point of view,” said Ian Stannard, head of European foreign exchange strategy at Morgan Stanley in London. “The yen is likely to perform much better than the market consensus,” said Stannard, whose bank was among the top forecasters of foreign-exchange rates last quarter, according to Bloomberg rankings of 61 firms.

The currency will also be supported in the longer term as Japanese pension funds repatriate money, Stannard said.

The yen has fallen more than 20% against the dollar since April 2013, when the Bank of Japan introduced unprecedented stimulus to boost the nation’s economy. The weaker currency is good for Japan’s exports and profits, according to BOJ Governor Haruhiko Kuroda.

FxEmpire provides in-depth analysis for each currency and commodity we review. Fundamental analysis is provided in three components. We provide a detailed monthly analysis and forecast at the beginning of each month. Then we provide more recent analysis and information in our weekly reports and we provide daily updates and outlooks.

Major Economic Events That Will Affect The Markets In December