Goldman Sachs - "We have changed our view on USDJPY. We have raised our 3-, 6- and 12-month path from 80 flat to 87 flat. We think that some JPY weakness is justified and likely to ‘stick’ given the change in external policy pressure on the BoJ by the Abe government. This has already narrowed the difference between the QE stance of the Fed and that of the BoJ, which makes a reversal to below 80 unlikely in the near term.
However, the outlook is clouded by several factors in the near term, which is why we keep the path flat at 87 and also maintain a slight bias to fade this move. Indeed, the price action post the January BoJ meeting illustrates why we hold this bias.
We expect the Fed to expand its balance sheet by US$85bn per month in 2013 and continue with QE in 2014, but at a reduced amount. We do not expect policy rates to rise in the US until 2016, which is a little more dovish than market expectations.
BoJ expectations are trickier to get a handle on, given the lack of survey data. The rates market does not expect the BoJ to hike rates until 2017, which is roughly in line with our view. Moreover, the heavy speculative positioning in the JPY suggests that parts of the markets now anticipate substantial additional easing by the BoJ.