Bank of America Merrill Lynch FX Strategy Research discusses USD/JPY outlook in 2018, and believes the yen's fundamental weakness will be maintained, but will manifest in USD/JPY rather than in cross-yen.
"There are three major factors we believe will maintain JPY's weakness in 1H18. (1) BoP, (2) Portfolio flow dynamics, (3) US real yield increase.
Higher US yields in 1H18 followed by higher JGB yields in 2H18 would lead to a USD/JPY rally in 1H18 followed by a correction in 2H18. Assuming the 10-year US yield rises to 2.9% led by the real yield, we expect the USD/JPY peak around 122 in 2Q18, and correct toward 115 by year-end," BofAML argues.
In line with this view,.