21 Mar 2014
Buy weakens in USD/JPY on equity mkt divergence – RBS
FXStreet (Guatemala) - Greg Gibbs, analyst at RBS, explained that the diverging trends in the US and Japanese equity markets and the weakness in USD/JPY at this time suggests that the equity markets do not feature highly in the reaction functions of either the Fed or the BoJ.
Key Quotes:
“However, looking ahead we might expect that equities will begin to enter those reaction functions again more clearly. The diverging equities should lead to easier policy in Japan and tighter policy in the US. If that occurs we might expect the USD/JPY to strengthen”.
“I remain bullish USD/JPY and am not so concerned by the diverging trends in the equity markets. In fact, I see the divergence as a reason to buy weakness in the USD/JPY and look for the BoJ to become more dovish and the Fed less dovish. The Fed has moved to a somewhat less dovish stance this week”.
“While few would see the strong equity market as a decisive factor in this decision, if the equity market was not so strong, the Fed's forecasts might not have been as optimistic”.
Key Quotes:
“However, looking ahead we might expect that equities will begin to enter those reaction functions again more clearly. The diverging equities should lead to easier policy in Japan and tighter policy in the US. If that occurs we might expect the USD/JPY to strengthen”.
“I remain bullish USD/JPY and am not so concerned by the diverging trends in the equity markets. In fact, I see the divergence as a reason to buy weakness in the USD/JPY and look for the BoJ to become more dovish and the Fed less dovish. The Fed has moved to a somewhat less dovish stance this week”.
“While few would see the strong equity market as a decisive factor in this decision, if the equity market was not so strong, the Fed's forecasts might not have been as optimistic”.