With long-term interest rates at home anchored by the Bank of Japan, the key determinants of the value of the yen are both outside Japanese policymakers’ control: geopolitics and the actions of the US Fed. The yen barely moved following today's North Korean missile launch having, over the course of the past week, reversed all of the safe haven gains made when tensions with Kim Jong-un flared up. Meanwhile, prospects for further tightening this year in the US have faded. As such, we see little other than another flare-up of tensions on the Korean peninsula that could dislodge the yen from its current level of 110 to the dollar over the remainder of 2017. We had previously expected the yen to slide to 115. Next year though, the differential between interest rates in Japan and the US is likely to widen again and cause the yen to weaken.
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