Jason Wong, Currency Strategist at BNZ, suggests that on a long-term historical basis, JPY remains a cheap currency, despite its strength this year.
“The BoJ is undershooting its inflation target by a significant margin and has run out of policy options. The new yield curve control policy is consistent with a tapering of BoJ asset purchases if inflation remains depressed. A massive, credible fiscal stimulus would put upward pressure on Japanese government bond yields and trigger increased BoJ purchases – that is the best chance for a weaker yen, but the government has shown no inclination to go down this path. Our projections suggest further gradual downward pressure on the cross over time, more or less in line with forward rates.”