USD/JPY likely to breach 130 level by end of 2017

The Bank of Japan (BoJ) in its November 1 monetary policy meeting mentioned its optimism over the growth of the economy, with a moderate rate of recovery observed in the global demand. The central bank is expected to maintain an easing bias, but shall not remain compelled to ease in the medium term.

We foresee that the USD/JPY currency pair will test the 130 level towards the end of 2017, for the first time since April 2002. Also, the 10-year Treasury yield spread will likely widen, at over 250 basis points for the first time since 2010.

The BoJ aims at achieving the 2 percent inflation target with expectations of buying around JPY80 trillion of government bonds per year. Upward pressure on global yields since the US election could potentially mean more QE, though.

If Trump successfully implements his fiscal plan, consumer inflation will surely rise, giving the Federal Reserve wider space for an interest rate hike. Thereby, rising Fed fund rate will increase the cost of borrowing. After the Presidential election result, JPY witnessed a massive selling against U.S. dollar, sending the USD/JPY higher by 17 percent to 118.67 in just a month’s time.

Meanwhile, Japan’s Nikkei 225 closed 1.45 percent higher at 19,061 while at 6:00GMT, the FxWirePro's Hourly Yen Strength Index remained neutral at 33.99 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex