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21 May 2014
Second Guessing the BoJ, negative on Yen– Rabobank
FXStreet (Guatemala) - Jane Foley, Senior Currency Strategist, Rabobank International explained that market expectations regarding the prospect of additional BoJ easing took another hit on the back of the BoJ’s assessment that the Japanese economy continues its moderate recovery.
Key Quotes:
“The data follow the release earlier in the week of the far stronger than expected March machine orders data which displayed a stunning 19.1% m/m rise and a Reuters poll suggesting that Japanese companies increasingly expect the economy to bounce back from the impact of the April sales tax increase by year end. Not only that but surveys also suggest a greater willing by Japanese companies to increase wages.”
“Higher wages will be instrumental to avoid a drop in consumers’ purchasing power on the back of the increasing inflation rate”.
“Despite its recent upbeat tone, the BoJ continues to recognise that there are risks to the economic recovery and, as we have stressed before, the BoJ is still following a very generous policy of monetary accommodation”.
“On a relative basis the degree of continued asset purchases by the BoJ becomes even more extraordinary as the Fed continues to taper its programme of QE”.
“Thus, while the yen has strengthened this morning as the market readjusts its optimistic forecasts regarding the likelihood for a step up in policy accommodation by the BoJ going forward, there is every reason to anticipate that the BoJ will be amount the last developed world central banks to withdraw extraordinary stimulus and this is likely to undermine the yen over the medium-term”.
Key Quotes:
“The data follow the release earlier in the week of the far stronger than expected March machine orders data which displayed a stunning 19.1% m/m rise and a Reuters poll suggesting that Japanese companies increasingly expect the economy to bounce back from the impact of the April sales tax increase by year end. Not only that but surveys also suggest a greater willing by Japanese companies to increase wages.”
“Higher wages will be instrumental to avoid a drop in consumers’ purchasing power on the back of the increasing inflation rate”.
“Despite its recent upbeat tone, the BoJ continues to recognise that there are risks to the economic recovery and, as we have stressed before, the BoJ is still following a very generous policy of monetary accommodation”.
“On a relative basis the degree of continued asset purchases by the BoJ becomes even more extraordinary as the Fed continues to taper its programme of QE”.
“Thus, while the yen has strengthened this morning as the market readjusts its optimistic forecasts regarding the likelihood for a step up in policy accommodation by the BoJ going forward, there is every reason to anticipate that the BoJ will be amount the last developed world central banks to withdraw extraordinary stimulus and this is likely to undermine the yen over the medium-term”.