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 Thursday 07 April 2016

PM Bulletin: JPY update

 

 

In Tuesday’s afternoon bulletin we looked at the yen and how it was strengthening, particularly against the US dollar. Back then the big question was: what would happen if the USDJPY broke back below 110.00? We suggested that technically it looked as if it could have a lot further to fall and for that reason we shouldn’t be surprised if the Bank of Japan (BOJ) checked rates or actively intervened to drive the yen lower.

Well yesterday it broke 110 decisively and so far today it has lost another 2 big figures, dipping below 108.00. The USDJPY hasn’t been this low since the BOJ expanded its monetary stimulus programme in October 2014. This was in an effort to drive the currency lower to boost exports and inflation. Japan’s excessive debt-to-GDP ratio makes it particularly vulnerable to deflationary pressures which are increased by yen strength.

Overnight Japanese policymakers made attempts to jawbone the yen lower. Most notable was the government’s Chief Cabinet Secretary Yoshihide Suga who said: “Excessive volatility and disorderly currency moves would have a bad impact”. However, it appears that the authorities are reluctant to intervene directly to halt the yen’s rise. This is because Japan takes over the chairmanship of G7 next month where members have said they won’t intervene to weaken their respective currencies.

So it looks as if investors and speculators have a free hand to take on Japan’s policymakers and push the yen as high as they dare. They are betting that there will be no direct intervention to knock the yen lower and no chance of additional monetary stimulus until later this month at the earliest. There is a two-day BOJ meeting over 27th and 28th April. They could be right. Intervention may or may not come, and even if it does its effects could prove fleeting. At the same time there is an underlying thesis is that the BOJ has run out of ammunition when it comes to effectively loosening monetary policy further. Some analysts wonder just which assets the BOJ has left to buy.

 But the stakes for Japan’s policymakers (not to mention the knock-on effects elsewhere) are incredibly high given the parlous state of the global economy. So there could be some action taken by some party. Whatever happens, it looks as if we’re in for a rocky ride – not just in FX but across all financial markets. 


Disclaimer:

Spread Co is an execution only service provider. The material on this page is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by Spread Co Ltd or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

 

Posted by David Morrison

Tagged: Bulletin PM

Category: PM Bulletin


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