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JPY weakness overdone? – DBS

FXStreet (Barcelona) - The DBS Group Research Team see the Yen weakness to be overdone as he believes the QQE2 and Sales tax hike scenario has already been priced in.

Key Quotes

“In Japan, speculation is high that PM Shinzo Abe would probably call for snap elections next month and postpone the second sales tax hike from the scheduled October 2015 to April 2017. Bank of Japan (BOJ) Governor Kuroda admitted yesterday that the 5-4 decision to implement QQE2 was based on assumption that the second sales tax would be implemented 12 months later. FYI, the first sales tax was hiked in April 2014, one year after the first QQE in April 2013.”

“First, the straight line projection suggests that USD/JPY has already discounted QQE2 and the second sales tax hike next year. Second, Japan can no longer claim that it is correcting excessive yen strength. USD/JPY is above its 2008 high while the benchmark DXY (USD) index is just shy of its 2009 peak.”

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