USD/JPY likely to move toward 105 by year-end - Lloyds Bank

 Analysts from Lloyds Bank explained that it appears to be scope to the upside in the USD/JPY  pair.

Key Quotes:

“The JPY has been among the most volatile of currencies after policy makers made notable changes to their fiscal and monetary stances. Most significantly, the Bank of Japan underwhelmed the market after delivering a modest stimulus package at July’s meeting. It added just ¥3tn in ETF purchases to existing measures, while leaving both the policy rate and asset purchase target unchanged.”

“USD/JPY collapsed from 105.50 to around 101. On the fiscal front, PM Abe announced a ¥28tn package (including over ¥13tn of “new” spending), designed to boost growth. Recent data supports the need for such action – inflation and inflation expectations are subdued; retail sales fell short of expectations and the manufacturing PMI remains in contractionary territory (below 50).”

“Recent US non-farm payrolls data has also reignited the prospect of the Federal Reserve raising interest rates this year. Indeed, we forecast a 25bp hike in December. Given this, and the historically extreme long JPY positioning, there appears scope for USD/JPY upside in the short term. We forecast the pair to move back towards 105 by end-2016, and 110 by end-2017.”