USD/JPY to move higher on growth and rate differentials - Lloyds

Analysts from Lloyds Bank expect that the relative growth and interest rate differentials between the United Stated and Japan will lead USD/JPY higher over the medium term.

Key Quotes:

“In the medium term, we continue to believe that the relative growth and interest rate differentials between the US and Japan will lead USD/JPY higher. Following the contraction in Q4 GDP and weakness of the latest Tankan business survey, there is a risk Japan falls back into recession. The weakness of the Japanese economy could trigger further monetary stimulus later in the year.”

“Furthermore, extreme positioning may limit further selling of the pair. Finally, there has also been an increase in foreign bond purchases from Japanese institutions, which should continue while JGB yields remain supressed. Given this, we believe USD/JPY will move higher, towards 116 by year-end.”