Is the USD/JPY pair all about wages? - Rabobank

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Nov 24, 2015.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    FXStreet (Delhi) – Jane Foley, Research Analyst at Rabobank, notes that the USD/JPY has pushed lower since the start of the week and the better data from Japan have also likely reinforced the softer tone of USD/JPY.

    Key Quotes

    “This morning’s release of Japanese November manufacturing PMI reached a 20 month high. Insofar as a weak Q3 GDP report put Japan back into technical recession, today’s news is an encouraging signal. The PMI, which rose for a second consecutive month, showed a strengthening in export orders and in the employment sub-index. Less encouraging was the softening in the new orders index.”

    “Although the Japanese economy remains vulnerable, not least to the outlook for Chinese growth, today’s report adds weight to hopes that Japan will pull out of recession in the current quarter. In view of the fact that weakness in inventories was a primary cause of the softness in Japan’s Q3 GDP report, today’s data adds to hope that final domestic demand is holding up.”

    “Both Kuroda and officials from the Abe government have been forceful in their call for greater wage inflation in Japan. PM Abe has repeatedly urged corporate Japan to plough more of their profits in wages and at last spring’s wage talks both the government and the central bank took a strong interest in wage negotiations of larger firms. This year promises to be no different.”

    “How the next round of wage talks progress is likely to play a crucial part in BoJ policy decisions going forward. Despite deep concerns in the market about the ability of the BoJ to achieve its 2% inflation target without stepping up the pace of monetary stimulus, Kuroda has remained upbeat in his economic assessments.”

    “More positive signals on wage inflation in the spring would feed optimism in Japan and limit the risk of another expansion in the BoJ’s huge QQE plan. While the BoJ are unlikely to welcome any recovery in the JPY vs. the USD, it is likely that the Fed’s tightening bias should keep USD/JPY well supported even without a step up in asset purchases from the BoJ in the coming months.”

    “Although steady policy from the BoJ combined with a slow trajectory of tightening from the Fed could limit scope for aggressive gains in USD/JPY, this is unlikely to warrant too much concern from the BoJ since the Japanese effective exchange rate is currently close to its lowest levels since the 1970s. We forecast a gentle move higher towards USD/JPY125 on a 9 – 12 mth view.”
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