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USD/JPY: Year-end target revised to 115.00 - Nomura

FXStreet (Bali) - Nomura has revised its year-end trading target for USD/JPY from 112 to around 115 after Friday's BoJ further easing.

Key Quotes

"We have been long USDJPY in the form of a 108/112 call spread since 3 October, but following the announcements by the BoJ and the GPIF over the last 24 hours, we think there is further upside."

"The announcement from the GPIF will see the foreign asset share move up to 40%. This is clearly higher than market expectations (30-35%). Given the impact that the GPIF could have on other smaller pension funds, this could generate an outflow as large as $180bn, which may happen over an 18-month period. This is substantially larger than assumed just a few weeks ago, and may still not be fully reflected in current market pricing. Importantly, one of GPIF officials clearly stated that these foreign investment is not going to be FX hedged, during the press conference today."

"The surprise announcement from the BoJ has managed to suppress yields along the yield curve further (10-year yield down to 0.45% and 30-year yield down to 1.60%). This will put pressure on Japanese financial institutions (beyond GPIF) to further accelerate asset allocation away from JGBs and into domestic equity and foreign securities. In addition, key policy makers, such as Finance Minister Aso and Economy Minister Amari, both welcomed the BOJ‟s decision, which sent USD/JPY higher. This suggests to us that policy makers are still fine with a gradual rise in USD/JPY, which will increase the upside risk of USD/JPY."

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