FX CURRENCY WATCH


As the yields


the


BoJ


JAPANESE YEN keeps


dynamics of


injecting US


strong interest


stimulus, rates/


will continue to be the main driver


Te yen strengthened against the dollar in the first half of 2017, reabsorbing around half of its post-Trump election correction, and rising from lows in the USD/ JPY 118 area to highs in the 108 area. In this case, the recovery mostly reflects developments on the US front, which overshadowed


46 FX TRADER MAGAZINE July - September 2017


domestic factors. The exchange rate mostly tracked the trend of US yields, on the long end of the curve in particular, which decreased, replicating the flattening of the US curve (Fig. A): the short end tracked the Fed’s hikes, whereas on the long end the slowdown in US inflation prevailed.


Te underlying trend of the yen, however, should turn downwards again, placing the exchange rate back on a path towards USD/JPY 118 (highs since the beginning of the year) on a 12m horizon. Given the prospect of another four fed funds rate hikes between now and the end of 2018 (as currently projected by the FOMC),


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