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JPY: Likelihood of BoJ’s policy action remains high – Nomura

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Mar 17, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

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    Yujiro Goto, Research Analyst at Nomura, notes that at the first meeting of the Japanese government’s global economic panel, Professor Stiglitz said the G7 should focus on coordinated stimulus for demand.

    Key Quotes

    “He said this is a time for stimulating fiscal policy, while monetary policy has reached its limits. Professor Stiglitz said a sales tax rise now would be the wrong direction and he told Prime Minister Abe that now is not time to raise the sales tax.

    After the meeting, Chief Cabinet Secretary Suga said the global economy meeting was not the place to discuss the sales tax and Finance Minister Aso said he wanted to proceed with the sales tax hike unless something unusual occurs. Nonetheless, the likelihood of fiscal stimulus from the Japanese government including delaying the sales tax hike likely remains high, ahead of 26-27 May.

    BOJ Governor Kuroda yesterday said exports and production are showing weakness, and he repeated that the BOJ would ease without hesitation if needed. He said there is room to cut rates to -0.5% theoretically, while the BOJ will ease again in all three ways if needed. Governor Kuroda yesterday maintained his positive stance on negative rate as a whole, while admitting some dis-functioning in money markets, at his press conference after the monetary policy meeting.

    Although BOJ Governor Kuroda yesterday said that economic environment is set for wage growth, wage negotiation results into the new fiscal year have been disappointing. Major Japanese companies are scheduled to publish their decisions on wage hikes into the new fiscal year, and Toyota is reported to be raising base salaries by only JPY1500 per month, while it raised them by JPY4000 last year (Bloomberg). Some major electronics companies are reported to be increasing base salaries by JPY1500, while they raised them by JPY3000 last year (Bloomberg).

    Disappointing wage negotiation results and recent weakness in Japanese economic data point to a high possibility of additional BOJ easing as early as April, while the Bank stayed on the sidelines yesterday. Governor Kuroda said monetary easing puts downward pressure on FX, while QQE with negative rates is not targeting FX. He said it was desirable for the currency to move in line with the real economy. Mr Kuroda said there was no criticism or questioning of BOJ policies at the G20. His comments suggest a rate cut is still possible, although there has been criticism of the negative rate policy, when the Bank eases.

    The BOJ disappointed the market, but the high chance of fiscal and monetary easing by Japanese policymakers in Q2 will limit downside risks for USD/JPY. Near-term upside room depends on the Fed’s communication today. We expect only a 25bp downgrade to the 2016 dots. We still judge upside risk for USD/JPY is greater than downside risk.”
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