1 May 2014
US-JP yield differentials to keep USDJPY sellers at bay - Nomura
FXStreet (Bali) - Yujiro Goto, FX Strategist at Nomura, provided his take on the latest BOJ monetary policy decision, one in which, as expected, the BOJ’s policy stance was virtually unchanged based on the outlook report and Governor Kuroda's press conference.
Key Quotes
"The BOJ kept its inflation forecasts for FY2014 (+1.3%) and for FY2015 (+1.9%) unchanged, while it forecasts inflation to reach 2.1% in FY2016 (median of board members' forecasts). The BOJ's inflation forecast remains more optimistic than those of private forecasters, but the lack of change to the FY2014-15 inflation forecasts should
slightly ease market concerns over the BOJ's hawkishness."
"Governor Kuroda's press conference offered no surprises either. Governor Kuroda reiterated that the BOJ will continue easing until inflation consistently registers 2% while stating the Bank will make adjustments without hesitation if needed."
"Even though the Bank now forecasts inflation to be around 2% for two consecutive years in FY2015-16, he said it is too early to discuss an exit now. At the same time, Governor Kuroda said the timing for reaching 2% inflation has not been pushed back at all, suggesting his strong confidence in achieving 2% inflation. Overall, his press conference suggested that the Bank‟s view has not changed while there are changes to the growth forecast with the newly announced FY2016 forecast."
"We are not surprised that the BOJ has kept its stance unchanged as inflation momentum has been in line with the BOJ’s forecast. As there are almost no changes in the BOJ‟s stance, market expectations for easing, which have been declining, may not change significantly. As the BOJ remains confident about achieving 2% inflation, we doubt the BOJ will ease at the next BOJ meeting scheduled for 20-21 May. We think the Bank is likely to leave its policy unchanged until it sees signs of a slowdown in inflation momentum, which is not yet visible in the inflation data. The next few BOJ meetings are unlikely to be catalysts for further JPY weakness, in our view."
"At the same time, Governor Kuroda clearly stated that it is still too early to argue for an exit while the Bank forecasts around 2% inflation for two consecutive years, suggesting the BOJ will keep buying JGBs at the current high pace for the foreseeable future. The yield differential between the US and Japan should keep widening in both nominal and real terms this year, sending USDJPY gradually higher. While BOJ meetings are unlikely to be catalysts for further JPY weakness in the near future, we expect USDJPY to appreciate gradually this year. Downside risk is also limited as BOJ action is still possible when downside risks to the economy and inflation increase."
Key Quotes
"The BOJ kept its inflation forecasts for FY2014 (+1.3%) and for FY2015 (+1.9%) unchanged, while it forecasts inflation to reach 2.1% in FY2016 (median of board members' forecasts). The BOJ's inflation forecast remains more optimistic than those of private forecasters, but the lack of change to the FY2014-15 inflation forecasts should
slightly ease market concerns over the BOJ's hawkishness."
"Governor Kuroda's press conference offered no surprises either. Governor Kuroda reiterated that the BOJ will continue easing until inflation consistently registers 2% while stating the Bank will make adjustments without hesitation if needed."
"Even though the Bank now forecasts inflation to be around 2% for two consecutive years in FY2015-16, he said it is too early to discuss an exit now. At the same time, Governor Kuroda said the timing for reaching 2% inflation has not been pushed back at all, suggesting his strong confidence in achieving 2% inflation. Overall, his press conference suggested that the Bank‟s view has not changed while there are changes to the growth forecast with the newly announced FY2016 forecast."
"We are not surprised that the BOJ has kept its stance unchanged as inflation momentum has been in line with the BOJ’s forecast. As there are almost no changes in the BOJ‟s stance, market expectations for easing, which have been declining, may not change significantly. As the BOJ remains confident about achieving 2% inflation, we doubt the BOJ will ease at the next BOJ meeting scheduled for 20-21 May. We think the Bank is likely to leave its policy unchanged until it sees signs of a slowdown in inflation momentum, which is not yet visible in the inflation data. The next few BOJ meetings are unlikely to be catalysts for further JPY weakness, in our view."
"At the same time, Governor Kuroda clearly stated that it is still too early to argue for an exit while the Bank forecasts around 2% inflation for two consecutive years, suggesting the BOJ will keep buying JGBs at the current high pace for the foreseeable future. The yield differential between the US and Japan should keep widening in both nominal and real terms this year, sending USDJPY gradually higher. While BOJ meetings are unlikely to be catalysts for further JPY weakness in the near future, we expect USDJPY to appreciate gradually this year. Downside risk is also limited as BOJ action is still possible when downside risks to the economy and inflation increase."