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USD/JPY pullbacks could test 107.39 – Rabobank

FXStreet (Edinburgh) - Jane Foley, Senior Currency Strategist at Rabobank, expects dips in spot could find decent support around 107.40 amidst the broader upside bias.

Key Quotes

“A slew of Japanese data over the past couple of months has suggested that the economy is failing to bounce back as well as had been expected after the consumer tax induced economic contraction in Q2”.

“By the end of the year, the Abe government will have to decide whether to go through with the second leg of the consumption tax hike as planned in 2015”.

“Another tax hike would increase the pressure on the BoJ to act again. BoJ Governor Kuroda this week maintained that the virtuous cycles that were evident at the start of the year in lifting both inflation expectations and growth are still in place”.

“Even though the Bank are widely expected to revise lower its forecasts for growth by the end of this month, the Bank does not appear to be positioning itself for an immediate increase in the amount of policy stimulus”.

“That said, speculation that this may be forthcoming in the coming months has risen since the summer. Even without additional stimulus, the size of the BoJ’s monthly asset purchases is huge and there are no signs of this ceasing any time soon”.

“Given the market’s assumption that the Fed will be tightening policy next year, there is good reason to expect that USD/JPY can continue to trend higher. Near-term, there is a risk that pullbacks could extend to the USD/JPY 107.39 which is the base line on the daily Ichimoku chart”.

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