USD/JPY: Medium term, we continue to expect material JPY strength – CitiBank

The Federal Reserve (Fed) and the Bank of Japan (BoJ) will have its policy meeting this week. Analysts at Citibank point out the Fed may cut rates by 25bps while the BoJ may keep rates unchanged and see that policy divergence may support the Japanese Yen.

Key Quotes:

“We outline the expectation for the BoJ to refrain from cutting their short term policy rate at the October meeting. If policy rate is further into negative territory, it may lead to consumption stagnation and downtrend in inflation. We therefore keep our 0-3m forecasts unchanged. More medium term, we continue to expect material JPY strength, as we expect US Treasury yield may fall further and yield spreads between US and Japan may narrow.”

“USD/JPY trades below 109.32 and a close back below 108.47 would be a short term bearish development. The pair may move lower to 106.48.”