In view of Greg Gibbs, Analyst at Amplifying Global FX Capital, from 2012 until 2016, the USD/JPY was for the most part driven by the adjustment to BoJ QE policy.
Key Quotes
“The BoJ really entered the QE game in a big way following the election win by PM Abe in late 2012. Abe promised to revamp the BoJ and kick-start QE, and did so by appointing BoJ Governor Kuroda in 2013. Kuroda implemented his version of “QQE” in April 2013, and drive USD/JPY from record lows below 80 in 2012 to 105 by end 2013.”
“The USD/JPY then ran out of puff for much of 2014, until Kuroda decided to shock the market with a further expansion of its QE asset purchases, driving USD/JPY to new highs above 120 by late-2014 and for much of 2015.”
“QE fatigue in 2016
In 2016, the market began to run into fatigue on BoJ QE policy, doubting that it was working to generate inflation, and predicting that the Japanese government and BoJ would lose patience with its perpetual soaking up of JGBs. It seemed as if the BoJ was out of bullets and it proved reluctant to further expand its QE asset purchases even as USD/JPY fell.
In this environment USD/JPY fell through much of 2016, unwinding a good deal of its QE induced rise in 2014/15.
In Sep 2016, grasping for new ideas, the BoJ introduced its policy of “yield curve control”, targeting 10-year yields around zero, a policy it retains to this day.
This may have helped stabilize the USD/JPY, and by late 2016 it started to rise again as the US economy started to show more strength and the Fed resumed its rate rises in December 2016, a full 12 months after its first hike in December 2015.
Since 2016, USD/JPY has lost its fascination with BoJ QE, responding more to US yields.”
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