USDJPY is likely to trade into a higher 110-120 range in 2017 - RBS

Research Team at RBS suggests that the USDJPY is likely to trade into a higher 110-120 range in 2017 as the Bank of Japan keeps 10Y JGB yields around zero.

Key Quotes

“BoJ is very committed to its new Quantitative and Qualitative Easing with Yield Curve Control framework.”

“The BoJ’s new policy of targeting 10Y yields is likely to result in the differential widening beyond its post-2008 highs.”

“BoJ has been fortunate in its timing. It announced its new YCC framework on September 22 with its ‘comprehensive assessment’ of QQE. Since then global yields have risen on greater reflation hopes out of both the US and China, increasing the power of the BoJ’s commitment to target 10Y yields ‘around zero’. The BoJ will be in no rush to start raising its long term yield target given it only expects national CPI excluding fresh food prices to reach 2% in the financial year 2018-19. Further, it has committed now to formally overshooting its 2% inflation goal. We see the BoJ acting like the SNB in keeping its new framework in place for 2-3 years just as the SNB kept its 1.20 EURCHF floor unchanged for over 3 years.”

“Thus, short JPY is one of the clearest global reflation trades. We see the currency being the weakest of the G3 in 2017.”