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BoJ QE increase and Fed QE end could impact USD/JPY - J.P. Morgan

FXStreet (Łódź) - The J.P. Morgan team of analysts see believe that the sharper divergence between the BoJ's and the Fed's monetary policies could have a considerable impact on USD/JPY.

Key quotes

"Possible change in relative balance sheet between the BoJ / the Fed and real yield differentials between Japan / US suggest a significant upside risk in USD/JPY."

"We now see USD/JPY to appreciate to 120 by September 2015. We recommend buying a 6-mo 114-120 USD/JPY call spread against selling a 6-mo 107 put, RKI 104. This costs 12bp."

"Today, the BoJ unexpectedly decided to expend QQE by a 5-4 vote."

"Today’s decision indicated BoJ's seriousness to push up Japan's inflation to 2%. Indeed, in their semi-annual Outlook Report, BoJ did not change their forecast of core CPI for FY 2016 at 2.1% (excluding the impact of consumption tax hike)."

"BoJ decided to hold more risky assets in their asset side and put liability side (the yen note) at risks. BoJ seems to be very serious to devalue the currency they issue."

"If the BoJ, who issue the yen note, are so serious to devalue of the yen, probably it will happen. The next question may be if they can stop the devaluation once Japanese people start worrying about holding the yen note."

"Indeed, the giant fund who manages pension money of Japanese people already shows the way. The GPIF also announced new target for their portfolio today."

"Under the new portfolio, GPIF will have to sell large amount of JGB, which will be absorbed by the BoJ, and buy more stocks and foreign assets. Actually, new allocation was also surprising to us because they will increase more foreign assets compare to we thought."

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