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18 Dec 2015
Stay bullish USDJPY as BoJ operational changes highlight easing bias – BNPP
FXStreet (Delhi) – Research Team at BNP Paribas, suggests that the Bank of Japan maintained its annual monetary base expansion target of JPY 80trn, but outlined some changes to the composition of purchases.
Key Quotes
“The BoJ extended the average maturities of JGBs it buys to 7-12 years (from 7-10 currently), announced JPY 300bn of additional ETF purchases and increased the maximum amount of each REIT issue it can buy to 10% from 5% currently. These operational changes to the purchases do not directly have particularly pronounced FX implication, but nonetheless they act as a reminder of the BoJs clear easing bias.”
“USDJPY initially rallied on the announcement, but has since come off temporarily trading below 122, in sympathy with a pullback in the Nikkei. In our view the BoJ do not need to increase their monetary base expansion target or cut rates further for USDJPY to rise towards our end-2016 target of 134.”
“We think the combination of rising US front-end yields, continued JPY portfolio outflows and FX positioning (see chart) should provide a backdrop against which USDJPY can rise. Elsewhere, we will be watching the financial account component of the Eurozone October balance of payments release for signs of renewed portfolio outflows by European investors.”
Key Quotes
“The BoJ extended the average maturities of JGBs it buys to 7-12 years (from 7-10 currently), announced JPY 300bn of additional ETF purchases and increased the maximum amount of each REIT issue it can buy to 10% from 5% currently. These operational changes to the purchases do not directly have particularly pronounced FX implication, but nonetheless they act as a reminder of the BoJs clear easing bias.”
“USDJPY initially rallied on the announcement, but has since come off temporarily trading below 122, in sympathy with a pullback in the Nikkei. In our view the BoJ do not need to increase their monetary base expansion target or cut rates further for USDJPY to rise towards our end-2016 target of 134.”
“We think the combination of rising US front-end yields, continued JPY portfolio outflows and FX positioning (see chart) should provide a backdrop against which USDJPY can rise. Elsewhere, we will be watching the financial account component of the Eurozone October balance of payments release for signs of renewed portfolio outflows by European investors.”