The USD/JPY vulnerability continues to be a major factor in FX through April. The pair continues to be on its volatile downtrend, noted Lloyds Bank in a research report. The Japanese yen had depreciated sharply in anticipation of additional aggressive policy stimulus, with the currency pair reaching close to 112. The USD/JPY pair is expected to move higher in the medium term due to the relate growth and interest rate differentials between Japan and the US, said Lloyds Bank.
The Japanese economy is at risk of entering recession again after contracting in the fourth quarter of 2015 and the weakness of the recent Tankan business survey. The weakness of Japan’s economy might result in additional monetary stimulus later in 2016, according to Lloyds Bank. Moreover, extreme positioning might restrict further selling of USD/JPY. Meanwhile, Japanese institutions have also raised their purchases of foreign bond that might continue while JGB yields continue to be suppressed.
“We believe USD/JPY will move higher, towards 116 by year-end”, noted Lloyds Bank.
