Goldman Sachs: USD/JPY to move higher to 108 by year-end

Analysts at Goldman Sachs released their latest note on Thursday, commenting on the BOJ policy decision and its impact on the yen.

Key Quotes:

“Perhaps in an effort to head off adverse market fallout, Governor Kuroda announced a "comprehensive review" for today's meeting, with the aim of reviewing the effects of QQE since its introduction. In the event, the "comprehensive review" brought fundamental changes.”

“The BoJ is moving away from quantity targets and switching to yield curve targeting, specifically committing to keeping the 10-year JGB yield around current levels (our rates team's forecast for year-end 2016 is 5bp, and we are not changing this).“

“We see this shift as an elegant way to end the market debate over JGB scarcity, which we have on various occasions argued never made much sense to begin with.”

“While the switch to yield curve targeting is arguably neutral, given that it aims to keep the 10-year yield around current levels, the commitment to aim for an inflation overshoot is a meaningful dovish change.“

“Much as in Oct. 2014 when QQE was upsized, price action has been lagging. But we expect $/JPY to move higher on these steps and move to 108 by year-end, our 3-month forecast for this cross.”