Global currencies: JPY and CNY outlook

The Japanese yen loses ground against the dollar while the Chinese yuan bounces back.

In recent weeks, the Japanese yen (JPY) has weakened against the USD, moving back above 114 in early July. This contrasts against a rally earlier this year, which took it to 110 a month ago from 117 levels at the start of the year.

The JPY seems likely to remain weak. The Bank of Japan will likely be the last major central bank to wind back its accommodative stance and Japanese inflation is still muted at the moment, compared to the US and Eurozone.

We now expect JPY at 115 in June 2018 (previous forecast 120 in March 2018). JPY will however continue to play an important role as a global risk-off proxy, serving as a stabilizer during phases of high volatility.

“Policy divergence and inflation expectations will likely keep the JPY weak.”

In contrast, the Chinese yuan (CNY) has strengthened to around 6.79 having averaged around 6.88 in the earlier months of the year.

We expect the CNY to weaken only gradually to 6.90 in June 2018 (previous forecast 7.10 in March 2018). It will likely be supported by official measures to stabilize the currency. Stable commodity prices and more visibility into U.S. foreign policy would also be supportive.

The currency’s inclusion into the special drawing rights (SDR) basket of the IMF was significant but is not expected to have a near- or medium-term impact on CNY valuations.

Source:  Bloomberg Finance L P, Deutsche Bank Wealth Management. Data as of July 12, 2017.

Markus Müller
Head CIO Office
Source: CIO Bulletin, July 14, 2017