CBA Mark AUD/JPY Forecasts Higher, But Expect Move Lower Come Year-End

CBA note that they have shifted up their “AUD/JPY forecasts because of the AUD rally fuelled by China’s reopening. We now forecast AUD/JPY will rise to Y95.0 by March 2023 before easing to Y86.0 over the following year.”

• “The prevailing optimism about the Chinese and the global economies can keep supporting risk appetite and in turn AUD/JPY in the near term.”
• “Nevertheless, AUD/JPY upside will likely be limited by ongoing expectations for the BoJ to tighten monetary policy.”
• “Our expectations for the RBA to soon pause its tightening cycle and the BoJ to exit its yield curve control and negative interest rate policy by mid-year suggest Australia-Japan interest rate differentials can narrow and weigh on AUD/JPY. Also pulling AUD/JPY down is the coming recession in the major advanced economies which we consider is not priced by most financial markets.”
• “A key upside risk to our AUD/JPY forecasts is if the Chinese and the global economies are stronger than we expect. On the flip side, an earlier than anticipated BoJ policy tightening can see AUD/JPY weaken more than we forecast.”