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Forex Flash: USD/JPY year-end forecast remains at 100.00 – UBS

FXstreet.com (Barcelona) - According to Research Analyst Gareth Berry at UBS, “Lower JGB yields on the back of aggressive BoJ easing could lower borrowing costs in the economy. That could encourage households and corporates to take on more debt to fund a buying spree at home.” The evidence in favor of this is hardly overwhelming. Already borrowing costs are extremely depressed and still demand for credit remains feeble.

If all else fails, a sudden increase in the global oil price could rescue the BoJ. The oil price spike in 2007/08 was instrumental in pushing CPI higher in Japan (and elsewhere too). However, relying on external events, which may or may not arise is hardly a recipe for guaranteed success.

“We keep our end-2013 forecast at 100 – even if the ultimate inflationary outcome is uncertain, the BoJ now has a license to ease boldly in an attempt to hit the 2% target.” Berry adds. The more elusive the target, the more likely even bolder easing will follow, driving JGB yields lower still and helping to weaken the yen even further.

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