22 May 2015
BoJ still on the hook to expand stimulus, upside room for USD/JPY – RBS
FXStreet (Barcelona) - Brian Mangwiro, Strategist, expects BoJ to expand its stimulus program over the medium-term, and hence suggests buying a 6M USD/JPY 130 USD call.
Key Quotes
“Recent BoJ guidance suggests a neutral policy stance, at least in the short term. April MPC Minutes highlight the Board’s modest optimism around exports, industrial production, investment (both public and private), housing, private consumption and the labour market outlook.”
“The Board still expects to hit its 2% inflation target in 2016, aided by waning energy-related base effects, recent wage increases and labour markets at the tightest levels since 2008. Market- and survey-based inflation expectations have been rising as well, and BoJ believes the subsequent decline in real interest rates should underpin firms’ and households’ spending. On this basis, Gov. Kuroda does not see stimulus expansion at this juncture."
“But the Bank may not be able to stand pat in the medium term. A significant constituency believes BoJ will be forced to expand QQE this year, either due to a smaller-than-expected CPI rebound and/or a weak(ening) growth outlook.”
“Following the Q1 GDP release, EconMin Amari was quick to highlight that private demand is still lacklustre and the sluggish global backdrop continues to pose downside risks to Japan’s growth outlook.”
“Weakness in China and the region, which account for ~55% of Japan’s export destination, also suggests that BoJ will have to gear policy towards stimulating domestic consumption.”
“The probability of precautionary stimulus expansion is not negligible despite some comments from the Abe administration that JPY had weakened enough. If BoJ’s hand is forced again, we believe it would most likely be in October, when the next Semi-annual economic assessment is due.”
“Trade Idea: Buy a 6M USD/JPY 130 USD Digi call for ~13%. Spot ref. is 121.10”
Key Quotes
“Recent BoJ guidance suggests a neutral policy stance, at least in the short term. April MPC Minutes highlight the Board’s modest optimism around exports, industrial production, investment (both public and private), housing, private consumption and the labour market outlook.”
“The Board still expects to hit its 2% inflation target in 2016, aided by waning energy-related base effects, recent wage increases and labour markets at the tightest levels since 2008. Market- and survey-based inflation expectations have been rising as well, and BoJ believes the subsequent decline in real interest rates should underpin firms’ and households’ spending. On this basis, Gov. Kuroda does not see stimulus expansion at this juncture."
“But the Bank may not be able to stand pat in the medium term. A significant constituency believes BoJ will be forced to expand QQE this year, either due to a smaller-than-expected CPI rebound and/or a weak(ening) growth outlook.”
“Following the Q1 GDP release, EconMin Amari was quick to highlight that private demand is still lacklustre and the sluggish global backdrop continues to pose downside risks to Japan’s growth outlook.”
“Weakness in China and the region, which account for ~55% of Japan’s export destination, also suggests that BoJ will have to gear policy towards stimulating domestic consumption.”
“The probability of precautionary stimulus expansion is not negligible despite some comments from the Abe administration that JPY had weakened enough. If BoJ’s hand is forced again, we believe it would most likely be in October, when the next Semi-annual economic assessment is due.”
“Trade Idea: Buy a 6M USD/JPY 130 USD Digi call for ~13%. Spot ref. is 121.10”