USD/JPY likely to trade around 105 by end-2016

The Japanese yen keeps on reflecting the changes in global investor confidence and relative monetary policies. Recently, the yen has resumed a weakening trend against the U.S. dollar due to wider U.S.-Japan yield spreads. However, it continues to remain 10 percent stronger against the US dollar year-to-date. The USD/JPY currency pair is expected to trade around 105 by the end of this year, according to a Scotiabank research report.

Meanwhile, Japan’s sovereign debt profile is subdued with gross public debt estimated at 253 percent of the GDP in 2016-2018, noted Scotiabank. Despite this, the government has no difficulty in refinancing its debt obligations at quite lower rates because of strong domestic appetite for government bonds given the high rate of savings and current account surplus position.

According to Scotiabank, any turmoil related to debt appears to be a rather distant likelihood in Japan. The June 2016 decision of the Japanese government to postpone the scheduled consumption tax rate rise until October 2019 urged Fitch to revise the outlook on Japan’s “A” sovereign credit rating to “negative”.