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Rabobank Write Through Issues Facing MoF on JPY Intervention

JPY
Rabobank write that there is almost no expectation of any change in BoJ policy this week, meaning the focus is therefore on what hints, if any, are provided about the potential for the BoJ to tighten policy again this year.
  • The risk that the MoF will order FX intervention in favour of the JPY remains at a heightened level. Despite this, USD/JPY may not turn lower until the summer and this assumes that the Fed can cut rates in September.
  • The problem facing the MoF is the widespread perception that the continued fragility of the Japanese economy will prevent the BoJ from enacting any meaningful reduction in the rate differentials between Japan and the US.
  • It is likely that speculation regarding US rates will have greater impact on the direction of USD/JPY than the policy action taken in Japan. This implies that the best result that the MoF can hope to achieve currently is some stability of USD/JPY while waiting for the market to adopt a more dovish view of the Fed.
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