USD/JPY looks to BoJ for further gains – BTMU

Currency Analyst at BTMU Lee Hardman believes that sustainable gains in the pair hinge on the size of the potential stimulus package by the BoJ, likely to be announced tomorrow.

Key Quotes

“Broad-based US dollar weakness has weighed on USD/JPY which has fully reversing yesterday’s pop higher following the announcement of a larger than expected fiscal stimulus package in Japan”.

“The headline figure for the size of the fiscal stimulus package is impressive at JPY28 trillion although it will be more important to wait for further details outlining how much of it is comprised of new government spending. Bloomberg has reported overnight according to a person familiar with the matter that new government spending will total JPY7 trillion although he didn’t specify over what time period the money would be spent. It is broadly in line with earlier reports in the Nikkei that new spending would total around JPY6 trillion. The reports highlight that the actual economic impact of the fiscal stimulus package is likely to be more modest than the headline figure suggests”.

“For the performance of the yen, the outcome from tomorrow’s BoJ policy meeting is likely to prove more important. We continue to believe that the BoJ will struggle to reweaken the yen on a sustainable basis unless it makes some form of “helicopter money” announcement tomorrow. Just announcing more of the same easing could prompt an initial pop higher for USD/JPY although it would likely prove fleeting”.