JPY: G7 meeting in focus – MUFG

Lee Hardman, Currency Analyst at MUFG, notes that the yen has weakened modestly in the Asian trading session ahead of the G7 meeting of finance ministers and central bank officials in Japan.

Key Quotes

“The more hawkish Fed is helping to support USD/JPY which is approaching key resistance at around the 110.40-level. The use of fiscal stimulus to support weak global growth is likely to be discussed at the G7 meeting. A Bloomberg report released overnight has stated that some ruling lawmakers in Japan are proposing an enlarged fiscal stimulus (JPY30 trillion?) to help offset the upcoming hot to the economy from the planned sales tax hike in April of next year. It would provide an alternative solution instead of just postponing the planned sales tax hike until the economy is on a stronger footing.

BoJ Governor Kuroda spoke ahead of the G7 meeting reaffirming that the BoJ will ease policy further without hesitation if required. The negative impact from a stronger yen to the BoJ’s price target was cited as one potential trigger for further easing. However he did not provide any signal that further easing was imminent stating that the BoJ will continue to examine how negative rates filter through the economy and prices for now.

If the BoJ were to surprise by delivering further stimulus in the coming months coinciding with a rate hike from the Fed it could potentially have more impact on lifting USD/JPY in the near-term. However, we remain cautious as our analysts in Tokyo do not expect further BoJ easing yet. Risk assets could also respond unfavourably to a Fed rate hike boosting safe haven demand for the yen.”