26 Jul 2013
Flash: Extrapolate JPY Weakness – BMO
FXstreet.com (London) - Stephen Gallo, European Head of FX Strategy at BMO compares the times in reflection to yen weakness.
Key Quotes:
“One of the factors we need to be mindful of when we’re all tempted to extrapolate JPY weakness in 2013 or 2014, is that the global picture on interest rates has changed dramatically over the course of the last 7 to 10 years”.
“ The early/mid-2000s was marked by general JPY weakness as rates outside of Japan remained high, the late 2000s was marked by JPY strength as global interest rate spreads collapsed”.
“…unlike the case during earlier periods of general JPY weakness, developed economies’ interest rates are starting from a very similar, low base as they rise in-line with better economic data”.
“In today’s environment then, there is a much greater chance for the JPY to rise in tandem with JGB yields as evidence mounts that Abenomics is feeding through. The BoJ may therefore have to work all that much harder to cap JPY strength and JGB yields as things develop, and this supports our relatively conservative forecasts for JPY weakness for 2013 as a whole as of today”.
Key Quotes:
“One of the factors we need to be mindful of when we’re all tempted to extrapolate JPY weakness in 2013 or 2014, is that the global picture on interest rates has changed dramatically over the course of the last 7 to 10 years”.
“ The early/mid-2000s was marked by general JPY weakness as rates outside of Japan remained high, the late 2000s was marked by JPY strength as global interest rate spreads collapsed”.
“…unlike the case during earlier periods of general JPY weakness, developed economies’ interest rates are starting from a very similar, low base as they rise in-line with better economic data”.
“In today’s environment then, there is a much greater chance for the JPY to rise in tandem with JGB yields as evidence mounts that Abenomics is feeding through. The BoJ may therefore have to work all that much harder to cap JPY strength and JGB yields as things develop, and this supports our relatively conservative forecasts for JPY weakness for 2013 as a whole as of today”.