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11 Jun 2014
BOJ meetings likely non-events for JPY - Nomura
FXStreet (Bali) - Yujiro Goto, FX Strategist at Nomura, expects the BOJ meetings from later this week will likely turn out to be non-events for JPY.
Key Quotes
Market expectations for near-term BOJ easing have declined further, according to Bloomberg. The survey of BOJ watchers, conducted from 3 to 6 June, suggests only three analysts out of 33 (9%) expect the BOJ to ease by July.
Last month's survey suggested nearly half of BOJ watchers (44%) expected the Bank to ease by July, so expectations of BOJ easing have declined significantly over the past month. A similar survey by the JCER, which was conducted slightly earlier (26 May to 2 June), showed 19% of BOJ watchers expected BOJ easing by July, implying market expectations for BOJ action declined further last week. Stronger-than-expected April core CPI and signs of relatively strong economic momentum beyond the tax hike are reducing market expectations for BOJ easing.
As market expectations for near-term BOJ easing keep declining, the next two or three BOJ meetings are less likely to be significant downside events for USDJPY.
Our economists also think the earliest the BOJ might ease is October, and we do not expect the BOJ meeting to be a catalyst for JPY weakness in the near future. Nonetheless, lower expectations for BOJ moves will limit the downside risk of USDJPY this month and in Q3.
While BOJ meetings are unlikely to be market-moving as we progress into Q3, the GPIF is likely to announce its new target portfolio with a lower share of domestic bonds. The domestic bond share could be lowered to around 40% from the current 60%, which would be positive for Japanese equities and USDJPY. Kyodo reported that the government should have the final draft of the growth strategy going into this weekend, and this is likely have cabinet approval by 27 June."
"The corporate tax reform debate is heating up among policymakers, and if the government can show a clear path for a 25-30% corporate tax rate in the next few years, the announcement should be positive for USDJPY. Japanese economic policy debate is more likely to be positive for USDJPY into Q3, especially after much lower expectations for BOJ easing.
Key Quotes
Market expectations for near-term BOJ easing have declined further, according to Bloomberg. The survey of BOJ watchers, conducted from 3 to 6 June, suggests only three analysts out of 33 (9%) expect the BOJ to ease by July.
Last month's survey suggested nearly half of BOJ watchers (44%) expected the Bank to ease by July, so expectations of BOJ easing have declined significantly over the past month. A similar survey by the JCER, which was conducted slightly earlier (26 May to 2 June), showed 19% of BOJ watchers expected BOJ easing by July, implying market expectations for BOJ action declined further last week. Stronger-than-expected April core CPI and signs of relatively strong economic momentum beyond the tax hike are reducing market expectations for BOJ easing.
As market expectations for near-term BOJ easing keep declining, the next two or three BOJ meetings are less likely to be significant downside events for USDJPY.
Our economists also think the earliest the BOJ might ease is October, and we do not expect the BOJ meeting to be a catalyst for JPY weakness in the near future. Nonetheless, lower expectations for BOJ moves will limit the downside risk of USDJPY this month and in Q3.
While BOJ meetings are unlikely to be market-moving as we progress into Q3, the GPIF is likely to announce its new target portfolio with a lower share of domestic bonds. The domestic bond share could be lowered to around 40% from the current 60%, which would be positive for Japanese equities and USDJPY. Kyodo reported that the government should have the final draft of the growth strategy going into this weekend, and this is likely have cabinet approval by 27 June."
"The corporate tax reform debate is heating up among policymakers, and if the government can show a clear path for a 25-30% corporate tax rate in the next few years, the announcement should be positive for USDJPY. Japanese economic policy debate is more likely to be positive for USDJPY into Q3, especially after much lower expectations for BOJ easing.