We expect the Bank of Japan (BoJ) to maintain its 'QQE with yield curve control' policy unchanged at its monetary policy meeting ending on 20 July. It is widely expected that the BoJ will keep its monetary policy unchanged, especially after it earlier this month demonstrated its strong commitment to yield curve control by announcing an unlimited fixed-rate purchase of 10Y JGBs. The announcement should not have any significant impact on price actions.
We expect EUR/JPY to trade in the range of 127-131 in coming months, targeting 128.8 in 1-3M. We expect the ECB to deliver only a minor hawkish twist at its July meeting, which, if anything, could add to the upside risks for EUR/JPY. Longer term, we expect EUR/JPY to continue higher driven by real interest rates and portfolio outflows out of Japan as we expect the ECB to move towards monetary policy 'normalisation' before the BoJ. We target EUR/JPY at 133.4 in 6M and 136.88 in 12M.
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