Since the aggressive decline and subsequent rebound in August, USD/JPY has been largely confined to a range, oscillating around 120. Risk sentiment and monetary policy remain the key themes. Global equities have stabilized in recent weeks, partially alleviating concerns of a deeper sell-off.
However, the domestic economic outlook continues to look gloomy for Japan. Industrial production and retail sales both underperformed this month, and despite marginally beating expectations, inflation remains muted at 0.2%, against a disinflationary global backdrop. At this stage, Governor Kuroda has yet to show an appetite to increase quantitative easing, with current policy being maintained by an 8-1 majority at this month's BoJ meeting.
Further stimulus, however, cannot be ruled out and will leave the currency on the back foot. If, as expected, the US Federal Reserve raises interest rates in December, USD/JPY is likely to end the year higher at 130 by the end of 2016, foresees Lloyds Bank.
