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USD/JPY at 110.00 in medium-term – Rabobank

FXStreet (Edinburgh) - According to Jane Foley, Senior Currency Strategist at Rabobank, the pair could reach 110.00 in the medium-term.

Key Quotes

“One year Japanese government yields reportedly traded at a yield of -0.005% this morning, the first time 12 mth paper has sunk below the zero mark”.

“The drop in yields to below zero is a function of the huge demand for government assets from the BoJ to meet to needs of its huge stimulus plan”.

“There is no question that the easing measures that the BoJ has put in place are very aggressive. It is very likely that without them Japan’s economic woes would be deeper than they already are”.

“In general recent data releases have been weak. This suggests that the economy is failing to bounce back as well as hoped in the current quarter after the Q2 economic contraction that followed the hike in the consumption tax in April”.

“Even though it is clear that QE is no silver bullet, in view of limited alternatives available, there is speculation in the market that the BoJ will be forced to increase its easing measures even further in the coming months; though it may have to become increasingly inventive”.

“Into the summer months BoJ optimism had repressed talk of a step up in policy action so this change in expectations has had some impact on yen positions”.

“That said, we have argued for some time that the outlook for the USD is key for the direction of USD/JPY and that further upside will be facilitated by a recovery in the greenback”.

“While we expect that the USD faces set backs from here, not least because we do not expect a rate hike from the Fed until the end of 2015, we do view the USD as having embarked on a long-term recovery”.

“We maintain a medium-term target for USD/JPY at 110.00”.

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