25 Apr 2016
JPY: Reversal of yen strength eases pressure on BoJ to act - MUFG
Lee Hardman, Currency Analyst at MUFG, notes that the yen recorded it’s a largest daily decline on Friday since the BoJ last expanded their QQE programme in October 2014.
Key Quotes
“As a result the yen is now trading only modestly higher than at the BoJ’s last policy meeting from the 15th March. The BoJ will be pleased that “excessive” yen strength is reversing. The reversal of yen strength accelerated on Friday following reports that the BoJ is considering providing monetary easing at this week’s policy meeting.
Reports that the BoJ is considering following the ECB by introducing negative rates on their own long-term bank lending facility to effectively pay banks to lend and dampen the costs of negative rates on banks’ profits has been welcomed initially by market participants. It has fuelled further expectations that the BoJ could also follow the ECB by announcing a more comprehensive package of easing measures at this week’s policy meeting. Market participants would be more impressed if the BoJ combined lowering rates deeper into negative territory with expanding the size of their QQE programme.
The release of the latest IMM report revealed that speculative long yen positions had continued to build ahead of last week’s sharp sell-off which likely reinforced the scale of the yen’s decline on Friday. The report revealed that net long yen speculative positions increased for the fifth consecutive week to the end of last Tuesday reaching their highest level since late in March 2008. On that occasion, it marked a temporary bottom for USD/JPY at around the 100-level after which it rebounded towards the 110.00-level in the following five months.
At the current juncture, we are not yet convinced that the yen will continue to weaken in the near-term. Firstly, there is still a sizeable risk that the BoJ may disappoint expectations for more aggressive easing at this week’s meeting. Our analysts in Tokyo remain unconvinced that the BoJ will ease policy this week although they acknowledge the risks of further easing have increased. The sharp weakening of the yen on Friday could also contribute to easing concern amongst BoJ policymakers over excessive yen strength reducing pressure to act more aggressively.”
Key Quotes
“As a result the yen is now trading only modestly higher than at the BoJ’s last policy meeting from the 15th March. The BoJ will be pleased that “excessive” yen strength is reversing. The reversal of yen strength accelerated on Friday following reports that the BoJ is considering providing monetary easing at this week’s policy meeting.
Reports that the BoJ is considering following the ECB by introducing negative rates on their own long-term bank lending facility to effectively pay banks to lend and dampen the costs of negative rates on banks’ profits has been welcomed initially by market participants. It has fuelled further expectations that the BoJ could also follow the ECB by announcing a more comprehensive package of easing measures at this week’s policy meeting. Market participants would be more impressed if the BoJ combined lowering rates deeper into negative territory with expanding the size of their QQE programme.
The release of the latest IMM report revealed that speculative long yen positions had continued to build ahead of last week’s sharp sell-off which likely reinforced the scale of the yen’s decline on Friday. The report revealed that net long yen speculative positions increased for the fifth consecutive week to the end of last Tuesday reaching their highest level since late in March 2008. On that occasion, it marked a temporary bottom for USD/JPY at around the 100-level after which it rebounded towards the 110.00-level in the following five months.
At the current juncture, we are not yet convinced that the yen will continue to weaken in the near-term. Firstly, there is still a sizeable risk that the BoJ may disappoint expectations for more aggressive easing at this week’s meeting. Our analysts in Tokyo remain unconvinced that the BoJ will ease policy this week although they acknowledge the risks of further easing have increased. The sharp weakening of the yen on Friday could also contribute to easing concern amongst BoJ policymakers over excessive yen strength reducing pressure to act more aggressively.”