JPY: Guided by BoJ? - Rabobank

Jane Foley, Senior FX Strategist at Rabobank, suggests that on Friday the BoJ will hold the first policy meeting of Kuroda’s new tenure and steady policy is widely expected. 

Key Quotes

“Despite robust Japanese economic growth, the BoJ is likely to continue pushing back against market speculation that the Bank’s commitment to its hugely accommodative monetary policy could wane during the course of this year.  Theoretically, this should signal scope for a softer JPY, though the outlook for the currency is hugely dependent on the market’s appetite for safe haven currencies.”

“Over the weekend Kuroda remarked that "in order to reach 2 percent inflation target, I think the Bank of Japan must continue very strong accommodative monetary policy for some time." These candid comments appear to leave little room for surprises at Friday’s BoJ policy meeting.”

“Despite Kuroda’s vocal commitment to its QQE policy, however, there have been other signs that the BoJ could already be tapering its asset purchases.”

“Measured from its November highs and Mar low, the value of USD/JPY dropped around 8.9%. Talk that the BoJ’s commitment to its QE programme may have wavered will have contributed to the rally in the JPY in this period. The broad based weakness of the USD in December and January is another contributing factor.  However, much of the rally can be associated with demand for safe haven assets triggered by issues such the stock market sell off earlier in the year, fear of trade wars as well as the legacy impact of tensions on the Korean peninsula.”

“The apparent thawing of the relationship between North and South Korea in addition to hopes that a full scale trade war between the US and China could be averted should be beneficial for risk appetite and should lessen demand for the safe haven JPY. Based on the interest rate differentials in favour of the USD, we expect USD/JPY to end the year higher.  However, we continue to see geopolitical concerns has providing a moderating influence.  We expect USD/JPY to end the year around the 110 area.”


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