[LFX]

Japan’s ultra low interest rates are likely to persist over the next year, helping foster JPY-funded carry trades and real money investors’ diversification into higher yielding foreign currency assets in a risk positive environment. The BoJ is distinguishing termination of some emergency corporate finance support
measures from its main monetary policy decision. Market analysts expect the BoJ and the US Fed to lag behind other G10 central banks in initiating a monetary tightening cycle. In addition, the recent bottoming of US-Japan yield spreads suggests that the JPY is likely to be a preferred carry trade funding currency even versus the USD. Still, the pace of USD-JPY gains will probably be slow until expectations of the Fed’s tightening cycle intensify.