USD/JPY likely to face downward pressure towards 108 by end-2019 on concerns over global economic slowdown, says Scotiabank

The USD/JPY currency pair is expected to face downward pressure towards 108 rate by end of this year on concern over global economic slowdown and disinflation risk, said Scotiabank in its latest report.

The 3 month-10 year U.S. Treasury yield curve inverted for the first time since the last crisis Friday, raising market expectations of a rate cut by the December FOMC meeting.

The dovish tone and/or potential monetary easing of the Fed and other major central banks will stabilize the market and improve risk sentiment finally, with lowering risk-free interest rate further and decreasing risk premium, according to the Canadian multinational bank.

The third largest bank in Canada by deposits and market capitalization, Scotiabank, said global reflation policies are supportive of EM Asian currencies particularly the high-yielding ones.

Meanwhile, the report said “we keep a close watch on the U.S.-China trade talks. The White House said Saturday that the U.S. will host a delegation from China led by Vice Premier Liu He for the ninth round of negotiations starting 3 April, following a trip by U.S. officials to China on 28-29 March in an effort to improve trade relations.”

“While the U.S. Treasury yields could temporarily rebound when risk sentiment improves, they will slide again on concern over global economic slowdown and disinflation/deflation. It will impose downward pressure on USD/JPY towards 108 that is our year-end forecast,” Scotiabank further commented in the report.