Goldman: BoJ Tailwind But Watch For Further Tactical Weakness

Goldman Sachs note that “over the past couple of weeks, the JPY has underperformed most other major currencies even as equities have sold-off, illustrating our empirical finding that USD/JPY typically rallies when U.S. real yields are rising, with the broader the risk backdrop taking a back seat.”

• “Thus, if markets continue to price in resilient U.S. growth and a longer Fed cycle, consistent with our own outlook, we see scope for further tactical JPY underperformance. That said, speculation around a surprise policy adjustment at Governor Kuroda’s last meeting in March has increased, despite Professor Ueda having so far suggested support for the current policy stance, including most recently at his testimony to the lower house.”
• “Such speculation (and likely continued market focus on a potential BoJ exit even if the March meeting itself disappoints as we expect) combined with elevated recession concerns should keep any JPY underperformance somewhat limited. But we have repeatedly said that U.S. real rates should matter most, and thus the current market environment looks less favourable for significant USD/JPY downside, even in the case of a hawkish BoJ policy shift.”