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Forex Flash: Yen stable ahead of Abe US trip - BTMU

Derek Halpenny, European Head of Global Market research at the Bank of Tokyo Mitsubishi UFJ notes that the dollar is broadly lower versus Asian currencies but the moves have been minor while equity markets are all higher on the day.

He notes that the Yen started the trading day on a weaker foot with trade data revealing a larger than expected trade deficit. The yen has since strengthened in part due to concerns over the ability of the BOJ to ease its monetary stance due to divisions within the monetary policy board over how to achieve a 2.0% target. Halpenny notes that a Reuters article reports that the monetary policy board is divided over what policies to implement in order to credibly be seen to be trying to get to its 2.0% inflation target.

He writes, “Indeed, one could probably go one step further and argue that there are a number of members who believe reaching the target through monetary policy alone is impossible. That is Governor Shirakawa’s view and is why there was a joint statement from the government and the BOJ when the inflation target was announced in January.”

He feels that it makes sense that the moves of the BoJ are likely to be cautious initially in order to assess how the government is proceeding with its objectives laid out in that joint statement in January. Indeed, he comments that disappointment in the BOJ after the new members are appointed is his key reason for forecasting USD/JPY back below the 90.00 level over the coming months.

He adds, “We should also add to that our view that foreign bond buying is nothing the Japanese government would consider any time soon and PM Abe confirmed that today in much stronger terms than he has done in the past stating that the need for the fund will “basically disappear” once the new positions at the BOJ are filled.” Halpenny feels that it is also worth noting the comment from Yoshihisa Morimoto – a BOJ policy board member – who stated that the BOJ will be implementing unprecedented policy easing this year – a suggestion that the planned increase in the APP may already be aggressive enough.

He notes that PM Abe’s trip to the US is now in focus and PM Abe is taking Vice Finance Minister Nakao with him, although given his position is Vice Finance Minister for International Affairs this is not particularly surprising. He feels that one key aspect of the trip will be the Trans Pacific Partnership trade deal that the US is trying to get Japan to sign up to. He finishes by writing, “We are sceptical of the view that success on TPP paves the way for intervention and think the G7 statement makes US opposition to any formal intervention policy clear. However, some market participants will view a TPP deal as USD/JPY bullish. Still, BOJ caution and no dramatic change in policy will eventually see USD/JPY lower.”

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