Japan: Post-BOJ meeting thoughts on the yen - Nomura
|Bilal Hafeez, Research Analyst at Nomura, suggests that the recent BOJ actions should not be seen as the beginning of tapering, but rather as a messy shift from a quantity target to a price target (interest rates).
Key Quotes
“Former Fed Chairman, Ben Bernanke, echoed this in his interpretation of the BOJ’s action. Moreover, like the Fed’s shift away from money supply targeting in the early 1980s, it may take time for the full impact to be realised by the market. The rationale may also be similar insofar as the link between the quantity target and the economy (and yen) has weakened. When the BOJ first ramped up its balance sheet by engaging in QQE in early 2013, it saw the yen weaken, growth pick up and core CPI exit deflation for the first time since 2009. However since 2014 that relationship has broken down.
A much stronger relationship lies between Japanese equities and the yen, and also broad money and the yen. When equities and broad money increase, the yen tends to weaken and vice versa. Broad money includes everything from bank deposits to stock investment trusts, and so captures whether central bank liquidity has spilled over to the non-bank economy. If the Bank of Japan can keep short and long-term interest rates below where the economy suggests it “should” be, then this should provide significant stimulus to the economy. This in turn should see the yen weaken. The critical barometer to monitor would be Japanese stock markets.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.