JPY: Is QE coming back as a factor? - AmpGFX

Sandeep Kanihama FXStreet Contributor

Greg Gibbs, Analyst at Amplifying Global FX Capital, suggests that so far this year, USD/JPY has become much more loosely related to US yields and QE has been forgotten since 2016; perhaps it is returning again as a factor contributing to recent weakness in JPY.

Key Quotes

“The BoJ has reduced its pace of purchases somewhat since implementing yield curve control in Sep-2016, capping 10-year yields below 10bp. Nevertheless, as a percentage of GDP, the BoJ’s balance sheet has continued to grow, reaching close to 100% of annual GDP.”

“The Fed’s balance sheet has been declining as a percentage of GDP since 2014; at an increasing rate since Sep 2017 when it began QT.”

“The diverging size of their balance sheets could be coming back into the equation for USD/JPY.”

“If the market is returning to consider relative QE, then it is possible that USD/JPY could move significantly higher again.”

Author

Sandeep Kanihama

FXStreet Contributor

Sandeep Kanihama is an FX Editor and Analyst with FXstreet having principally focus area on Asia and European markets with commodity, currency and equities coverage. He is stationed in the Indian capital city of Delhi.

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