The initial FX market reaction to the news that the BoJ had exited its negative interest rate policy after eight years was one of disappointment. Economists at Rabobank analyze USD/JPY outlook for the coming months.

USD/JPY seen at 140.00 in 12 months

The BoJ has exited its negative interest rate policy after eight years. The JPY sold off on a ‘sell on the fact ‘reaction as investors digested the news that BoJ Governor Ueda was not in a position to signal that this week’s policy move was the start of a series of increases in interest rates.

Developments regarding the BoJ’s virtuous cycle are only part of a series of changes and reforms that will dictate how attractive Japanese assets become over the medium term.

We see scope for the JPY to recover moderately in the months ahead and maintain a 12-month target of USD/JPY at 140.00.