USD/JPY: extensive fundamental analysis of the pair for October 2017 (Lloyds Bank)

Lloyds Bank shares its October fundamental analysis of the USD/JPY.

"The Japanese yen weakened against the US dollar but remains in its medium-term range.

The change in US rate expectations, which now suggest a Fed rate hike of 25bp in December is coming, has been the main driver of the move.

Following strong wage growth in the latest US jobs report, we believe the Fed is ready to raise rates in December, and then probably another 75bp next year. Our expectations are ahead of those of the markets, so this implies bullish risks.

In contrast, Japan's monetary policy is expected to remain unchanged for the next few years.

In view of the divergent prospects between US and Japanese rates, we believe that there are upside risks for the USD/JPY. However, the speculative net short positioning of the yen could limit movement. We expect the USD/JPY at 117 by the end of 2018."