Josh O'Byrne, Currency Strategist at Citigroup, on economic prospects after sales tax hike, BoJ's monetary policy and Japanese Yen

We expect that economy's growth in the first quarter would be largely driven by robust demand for products before the introduction of the sales tax hike. In the second quarter we believe the economy will slow down somewhat. We anticipate that rushed demand, which we are going to see through the first quarter, to be erased in the Q2. Once the policy makers indicate that there is economic slowdown from the sales tax hike, we see the Bank of Japan embarking on further easing, most probably towards June of the year of 2014.

The fact that the Bank of Japan stayed pat on its monetary policy is justified, with inflation ticking up and positive growth numbers. Consequently, it appears that there is no trigger for further easing at this stage. However, the introduction of sales tax hike might become a potential catalyst to further easing.

First of all, obviously we expect that monetary policy is going to have a significant impact on the Japanese Yen's movement. Alongside this, the potential follow through further easing could have an impact on capital flow. Thus, possibly the retail and institutional sectors will be getting involved in reallocating their investments away from Japanese assets or Japanese government bonds into more risk-correlated investments such as Japanese equities or foreign fixed income, as well as foreign equities. Besides, it is expected that the Yen will continue to weaken further, as more risk-correlated currencies outside G-10 will probably rally a little further given the fact that they have digested Fed tapering fairly well.

Our official forecast for USD/JPY is around the present levels with a tendency towards 105 for the upcoming three months and until the end of 2014. In regards of the EUR/JPY currency pair throughout this year, our forecast is a range between 140 and 147.