JPY to continue to appreciate – Lloyds Bank

According to the model estimates of Lloyds Bank, yen is undervalued and even though over the coming quarters, there is scope for some consolidation within its broader range, but, beyond that, they expect the JPY to continue to appreciate.

Key Quotes

 “Over the last month the Japanese yen has strengthened appreciably against the US dollar driven principally by two developments. Firstly, the US Federal Reserve’s rate hike in March was considered ‘dovish’, given that the median expectation on the ‘dot plot’ was left unchanged. Secondly, US President Trump’s failure to pass his healthcare bill led the market to reconsider the likelihood of the administration gaining enough support to push through a sizeable economic stimulus. Consequently, US Treasury yields have tracked lower and USD/JPY has made a new year-to-date low below 110.”

“Market expectations for US and Japanese monetary policies are broadly in-line with our own. The Federal Reserve looks most likely to enact two further 25bp rate rises in 2017, while the Bank of Japan has reaffirmed its commitment to its yield curve control strategy. Risk sentiment remains stable, with global equity markets consolidating close to their record highs. However, model estimates still suggest the yen is undervalued. Over the coming quarters, there is scope for some consolidation within its broader range. But, beyond that, we expect the JPY to continue to appreciate, towards 108 by end-2017.”