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CBA Exp. USD/JPY To Move Higher In Remainder Of '21, Closing Fair Value Gap

JPY

CBA note that "the Nikkei 225 index is an important input to our USD/JPY quarterly fair value equation. Despite the marked increase over the past week, the quarter‑to‑date average of the Nikkei index is modestly lower than last quarter's average. The lower equity prices are enough to pull down the fair value of USD/JPY. The fall in U.S.‑Japan 10-Year swap rate differential also contributed. Our equation suggests USD/JPY fair value is now Y117, down from Y120 the previous quarter. Combined with the rise in spot, USD/JPY's undervaluation has now decreased to 'only' 6%. USD/JPY has been trading below fair value since late 2017. We expect USD/JPY will continue to appreciate and further close the gap with its fair value over 2021. However, the lift in USD/JPY could be bumpy now that the FOMC may delay its taper of asset purchases. Concerns about the Delta variant could also undermine USD/JPY intermittently."

MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com
MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com

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