11 Jun 2015
Kuroda’s comments do not change the bullish USD/JPY view – Nomura
FXStreet (Barcelona) - FX Strategists at Nomura, list the key reasons behind their bullish outlook for USD/JPY and why Kuroda’s comments on JPY depreciation won’t affect the long-term bullish view for the pair.
Key Quotes
“Even before Kuroda’s comment, market expectations for immediate additional easing were virtually non-existent, so we do not feel these comments can be considered a disappointment regarding the BOJ’s policy stance.”
“Also, it was not shocking to anyone that JPY on a REER basis is in “very weak” territory. For example, a board member, Harada, said “excessive yen strength has now been corrected”, on 4 June. As USD/JPY has reached its highest level since 2002, Kuroda’s judgement on JPY REER is not necessarily surprising.”
“The BOJ has no choice but to continue its current QQE program until it achieves its 2% inflation target. It is still premature for the BOJ to start tapering, and Kuroda’s comment is not likely to change this.”
“The most important fundamentals for JPY clearly suggest further JPY depreciation: (i) US-Japan rate differential continues to widen and (ii) JPY supply-demand conditions remains in “net sold” territory from pension/lifer/toshin money actively investing in foreign currencies.”
“We might have entered a range of 122-125 for the near term, after Kuroda’s comment. However, as our US lift-off scenario comes into view, USD/JPY should regain its clear uptrend, in our view. We maintain our bullish bias on USD/JPY.”
Key Quotes
“Even before Kuroda’s comment, market expectations for immediate additional easing were virtually non-existent, so we do not feel these comments can be considered a disappointment regarding the BOJ’s policy stance.”
“Also, it was not shocking to anyone that JPY on a REER basis is in “very weak” territory. For example, a board member, Harada, said “excessive yen strength has now been corrected”, on 4 June. As USD/JPY has reached its highest level since 2002, Kuroda’s judgement on JPY REER is not necessarily surprising.”
“The BOJ has no choice but to continue its current QQE program until it achieves its 2% inflation target. It is still premature for the BOJ to start tapering, and Kuroda’s comment is not likely to change this.”
“The most important fundamentals for JPY clearly suggest further JPY depreciation: (i) US-Japan rate differential continues to widen and (ii) JPY supply-demand conditions remains in “net sold” territory from pension/lifer/toshin money actively investing in foreign currencies.”
“We might have entered a range of 122-125 for the near term, after Kuroda’s comment. However, as our US lift-off scenario comes into view, USD/JPY should regain its clear uptrend, in our view. We maintain our bullish bias on USD/JPY.”