LONDON, Jan 29 (Reuters) - The Bank of Japan's surprise decision to adopt negative interest rates on Friday could drive the dollar up to 125 yen, leading currency trader Deutsche Bank said in a note.
"We see the BOJ move as sufficient to take us to the top end of the 115-125 USD/JPY range we have been assuming this year," George Saravelos, currency strategist at the bank, said.
"The extent of the impact of the BOJ announcement on the currency and fixed income markets will depend on how the Japanese, rather than foreigners, respond to negative rates."
Japanese investors own more than 90 percent of the local government bond market and could increase their investment abroad in search of more attractive yields -- a move that is likely to weigh on the yen.
The yen was on track for its biggest daily fall against the dollar in over a year on Friday. The dollar was trading at 121.28 yen, up 2 percent on the day, and near its highest in a month. (Reporting by Anirban Nag, editing by Nigel Stephenson)