USD/JPY likely to trade around 108 by end-2017, says Lloyds Bank

The Bank of Japan, continues to lock 10-year government bond yields at around 0 percent, as part of its current policy stance. This appears unlikely to alter anytime soon given the mixed nature of recent data releases. While the latest Japanese industrial production and retail sales report were stronger, inflation continues to be considerably short of the Bank of Japan’s 2 percent target at just 0.5 percent, while the second quarter GDP growth was downwardly revised to an annualized rate of 0.6 percent from 1 percent. Given that the Japanese bond yields are locked, the USD/JPY pair continues to be sensitive to the interest rate developments in the U.S., and the usual safe-haven buying of JPY because of increased global risks, noted Lloyds Bank in a research report.

Along with the softer U.S. economic data, less hawkish comments from U.S. Fed speakers and the geopolitical risks surrounding North Korea has led to a constant decline in U.S. bond yields. The market at present assigns a comparatively low probability to a 25 basis point hike by the U.S. Fed in December, with the central bank likely to focus on balance sheet reduction during its next meeting in September. Given this, the USD/JPY pair has continued to move lower, breaking through the medium-term range supports around 108.

“We continue to see limited upside at this stage, with a bias for a deeper test towards 105”, added Lloyds Bank.

At 21:00 GMT the FxWirePro's Hourly Strength Index of Japanese Yen was bearish at -82.9429, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at 21.3244. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

FxWirePro launches Absolute Return Managed Program. For more details, visit http://www.fxwirepro.com/invest