13 Jan 2016
Market too complacent on BoJ? - BNP
FXStreet (Bali) - BNP Paribas FX Strategy Team notes that the market is too complacent on the potential impact of recent market developments on the BoJ policy outlook.
Key Quotes
The JPY is the strongest G10 currency since the start of the year, consistent with negative risk sentiment.
As our Japanese economists highlighted last week the BoJ will likely fail – by some distance – to meet its current pledge of 2% inflation by the second half of the fiscal year ending in March 2017.
While our base-case scenario remains for not further easing, weaker global growth and yen appreciation could force the BoJ to cut the interest rate on excess reserves.
At the very least, we think policymakers should have noted the trade-weighted JPY now reversing all of its post-October 2015 weakness, implying that currency rhetoric may change in a more dovish direction in the near future.
Japan’s November BoP data highlight that FDI and portfolio outflows more than offset the current account surplus, pushing the BBBoP into a JPY 1.6trn deficit.
Key Quotes
The JPY is the strongest G10 currency since the start of the year, consistent with negative risk sentiment.
As our Japanese economists highlighted last week the BoJ will likely fail – by some distance – to meet its current pledge of 2% inflation by the second half of the fiscal year ending in March 2017.
While our base-case scenario remains for not further easing, weaker global growth and yen appreciation could force the BoJ to cut the interest rate on excess reserves.
At the very least, we think policymakers should have noted the trade-weighted JPY now reversing all of its post-October 2015 weakness, implying that currency rhetoric may change in a more dovish direction in the near future.
Japan’s November BoP data highlight that FDI and portfolio outflows more than offset the current account surplus, pushing the BBBoP into a JPY 1.6trn deficit.