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JAPAN: A Weaker Yen May Be Back In Focus For The BOJ

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The weaker yen is once again in focus. Yen has lost around 6.5% against the USD since mid September (the USD/JPY trough point). Late yesterday ex BoJ executive official Momma stated that a push in USD//JPY above 150.00 would bring forward the next BoJ rate hike. He added that the July hike was 80-90% driven by the weaker yen trend (per BBG). 

  • USD/JPY y/y shifts have a reasonable correlation with Japan import price momentum. The first chart below presents the two series. Note we extrapolate y/y shifts in USD/JPY to the end of this year by assuming that USD/JPY rises just above 150 by the end of this month and holds there. Such a backdrop would imply y/y import prices would start turning positive again by year end (currently at -2.6%).
  • The historical correlation back to 2014 between the two series is 56%. If we use the Japan TWI it is slightly higher at 59% (obviously using inverse changes in the TWI index). 

Fig 1: USD/JPY And Japan Import Prices Y/Y

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The weaker yen is once again in focus. Yen has lost around 6.5% against the USD since mid September (the USD/JPY trough point). Late yesterday ex BoJ executive official Momma stated that a push in USD//JPY above 150.00 would bring forward the next BoJ rate hike. He added that the July hike was 80-90% driven by the weaker yen trend (per BBG). 

  • USD/JPY y/y shifts have a reasonable correlation with Japan import price momentum. The first chart below presents the two series. Note we extrapolate y/y shifts in USD/JPY to the end of this year by assuming that USD/JPY rises just above 150 by the end of this month and holds there. Such a backdrop would imply y/y import prices would start turning positive again by year end (currently at -2.6%).
  • The historical correlation back to 2014 between the two series is 56%. If we use the Japan TWI it is slightly higher at 59% (obviously using inverse changes in the TWI index). 

Fig 1: USD/JPY And Japan Import Prices Y/Y

Keep reading...Show less