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Differing Views on Potential MOF Intervention as BOJ Approaches

JPY
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  • While the current level of the Yen is deemed insufficient to prompt an immediate BOJ rate hike, the central bank will monitor its impact on inflation which could prompt tighter policy as early as June, MNI understands. Japanese officials appear conscious that any FX intervention at this juncture might have limited impact, given the underlying fundamentals. Both BBVA and SocGen have differing views on when potential action may come.
  • BBVA Say BOJ May Send JPY Message Tomorrow
    • BBVA do not expect a rate hike, but all conditions are in place for a less dovish stance, and they believe the BoJ may send a message to the market tomorrow to try to halt the yen's decline. It could do this by either signalling a possible rate hike at future meetings this year or by reducing the amount of bond buying, which is weighing on differential yields and, in turn, penalising the yen.
    • In any case, if the BoJ does not change course tomorrow, intervention would seem to be necessary.
  • SocGen Say Current JPY Decline Too Gradual To Burn Itself Out
    • SocGen believe a policy change is inconceivable, as the BOJ wait to see the full impact of the latest wage round. The board could push up inflation & GDP forecasts, however, it’s hard to see that stopping the yen’s decline.
    • SG believe the MOF needs to act more forcefully if it wants to turn the tide, but so far ‘watching levels’ has been the extent of it. Leveraged accounts are earning carry from shorting the yen and are helped by low volatility. Short-term traders appear to be selling into each move higher in USDJPY.
    • They note USDJPY is absurdly high, especially in inflation-adjusted terms, but if history tells us anything, it’s that end-cycle spikes are common. The current move is still too gradual to burn itself out with the help of MOF threats of intervention, according to SocGen.
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  • While the current level of the Yen is deemed insufficient to prompt an immediate BOJ rate hike, the central bank will monitor its impact on inflation which could prompt tighter policy as early as June, MNI understands. Japanese officials appear conscious that any FX intervention at this juncture might have limited impact, given the underlying fundamentals. Both BBVA and SocGen have differing views on when potential action may come.
  • BBVA Say BOJ May Send JPY Message Tomorrow
    • BBVA do not expect a rate hike, but all conditions are in place for a less dovish stance, and they believe the BoJ may send a message to the market tomorrow to try to halt the yen's decline. It could do this by either signalling a possible rate hike at future meetings this year or by reducing the amount of bond buying, which is weighing on differential yields and, in turn, penalising the yen.
    • In any case, if the BoJ does not change course tomorrow, intervention would seem to be necessary.
  • SocGen Say Current JPY Decline Too Gradual To Burn Itself Out
    • SocGen believe a policy change is inconceivable, as the BOJ wait to see the full impact of the latest wage round. The board could push up inflation & GDP forecasts, however, it’s hard to see that stopping the yen’s decline.
    • SG believe the MOF needs to act more forcefully if it wants to turn the tide, but so far ‘watching levels’ has been the extent of it. Leveraged accounts are earning carry from shorting the yen and are helped by low volatility. Short-term traders appear to be selling into each move higher in USDJPY.
    • They note USDJPY is absurdly high, especially in inflation-adjusted terms, but if history tells us anything, it’s that end-cycle spikes are common. The current move is still too gradual to burn itself out with the help of MOF threats of intervention, according to SocGen.