16 Feb 2015
JPY a sell into BoJ’s policy meeting – BAML
FXStreet (Barcelona) - According to BofA-Merrill Lynch, the short-term upside pressure on JPY should be used as a selling opportunity into BoJ’s policy meeting this week, as the policy divergence between US and Japan will likely keep USD/JPY risks tilted to the upside.
Key Quotes
“The BoJ’s inflation outlook remains optimistic, [..] we see little reason for it to change its policy before the spring wage negotiation and assessing the upcoming data.”
“The FX market’s focus will be on Kuroda’s view on the currency. On the one hand, the rising currency volatility would concern the BoJ as a number of central banks have implemented monetary easing this year, particularly if currency dislocation continues as David Woo explored in his note.”
“On the other hand, a media report (Bloomberg) hammered the $/¥’s upward nascent momentum on 12 February. It read “BoJ is said to see extra stimulus counterproductive for now” as it could “trigger declines in the yen that damage confidence” according to “people familiar with the talks”.”
“If Kuroda’s neutral stance on the yen is unchanged and he distances himself from the earlier media report, the $/¥’s reaction could be limited, but its upward bias will remain intact as the policy divergence will progress as we get closer to the Fed’s first hike. This is our main scenario though we monitor his language closely to see if there’s any shift in his view to either direction.”
“From a risk/reward perspective given market positioning, we hold our long-bias in the $/¥ heading into the meeting and regard short-term pressure on the pair as an opportunity to sell JPY, barring a significant shift in the BoJ’s view on the currency, which seems unlikely, in our view.”
Key Quotes
“The BoJ’s inflation outlook remains optimistic, [..] we see little reason for it to change its policy before the spring wage negotiation and assessing the upcoming data.”
“The FX market’s focus will be on Kuroda’s view on the currency. On the one hand, the rising currency volatility would concern the BoJ as a number of central banks have implemented monetary easing this year, particularly if currency dislocation continues as David Woo explored in his note.”
“On the other hand, a media report (Bloomberg) hammered the $/¥’s upward nascent momentum on 12 February. It read “BoJ is said to see extra stimulus counterproductive for now” as it could “trigger declines in the yen that damage confidence” according to “people familiar with the talks”.”
“If Kuroda’s neutral stance on the yen is unchanged and he distances himself from the earlier media report, the $/¥’s reaction could be limited, but its upward bias will remain intact as the policy divergence will progress as we get closer to the Fed’s first hike. This is our main scenario though we monitor his language closely to see if there’s any shift in his view to either direction.”
“From a risk/reward perspective given market positioning, we hold our long-bias in the $/¥ heading into the meeting and regard short-term pressure on the pair as an opportunity to sell JPY, barring a significant shift in the BoJ’s view on the currency, which seems unlikely, in our view.”