22 Aug 2013
Flash: USD/JPY to benefit from encumbered JPY – BMO Capital Markets
FXstreet.com (New York) - “We suspect therefore that forthcoming four weeks or so leading into the September the FOMC rate decision are quite likely to be the most data-dependent of all for rates and FX, notes Greg Anderson at BMO Capital Markets.
Key quotes
“Expectations based on the data that the Fed will need to move more abruptly on the first round of QE withdrawal will drive risk-off, and expectations that the Fed will either start later than September and/or with a particularly small amount or reduction should drive risk-on. Look to rates first, developing market currencies and asset prices second, and then to the G-10 space third.
Additionally, “the coming few weeks will, we think, be very important for setting the directional trend for the JPY for the balance of the year. As the Fed tapers is asset purchases, dovish rhetoric from the BoJ, which aligns itself with any downside misses in CPI and growth data will find that it has a nice window to force the JPY to weaken through. All things being equal, the line of JPY weakness should be a bit less encumbered as the Fed sets itself up wind down its asset purchases by next summer.”
Key quotes
“Expectations based on the data that the Fed will need to move more abruptly on the first round of QE withdrawal will drive risk-off, and expectations that the Fed will either start later than September and/or with a particularly small amount or reduction should drive risk-on. Look to rates first, developing market currencies and asset prices second, and then to the G-10 space third.
Additionally, “the coming few weeks will, we think, be very important for setting the directional trend for the JPY for the balance of the year. As the Fed tapers is asset purchases, dovish rhetoric from the BoJ, which aligns itself with any downside misses in CPI and growth data will find that it has a nice window to force the JPY to weaken through. All things being equal, the line of JPY weakness should be a bit less encumbered as the Fed sets itself up wind down its asset purchases by next summer.”