FXStreet (Bali) - JP Morgan FX Strategists maintain their year-end target of 106.00 in USD/JPY expecting the US front-end yields to reinvigorate the broader uptrend in the pair.

Key Quotes

"JPY has become, to us, so much less about Abenomics and almost exclusively about US rates."

"While we expect several Third Arrow components to be approved and/or implemented over the next year (a cut in corporate taxes, approval of GPIF reform, successful conclusion of the TPP), only one of these measures (GPIF reform) is obviously yen-negative through increasing allocation to non-Japanese assets."

"Thus the primary driver of USD/JPY remains US front- end yields, and merely a rise in the US 2-yr to the 0.9% we expect by year-end would be sufficient to meet the 106 target."

"Over the summer, however, USD/JPY could decline to 100 as private pension funds are liquidated before being rolled into the GPIF. These funds eventually will be reinvested abroad, so do are not a source of trend strength. The research note JPY: Dissolution of private pension funds on page 32 of this report explains the issue."

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