JPY: Stronger GDP provides further cheer for the BoJ – MUFG

Lee Hardman, Currency Analyst at MUFG, suggests that the greater initial focus on the potential for looser US fiscal policy and tighter Fed policy has weighed heavily on the yen resulting in USD/JPY closing above its 200- day moving average at around 106.50 for the first time since late last year.

Key Quotes

“Sharply higher US yields are providing an initial boost for USD/JPY while concerns over more protectionist US trade policies which would favour a stronger yen are judged as less important for now. The sell-off in global bonds could increase upward pressure on the BoJ’s 10-year JGB yield target at 0.00% encouraging speculation that the BoJ may have to accelerate purchases weighing on the yen as well.”

“Upward pressure on JGB yields has also been encouraged overnight by the release of the much stronger than expected Japanese GDP report for Q3. The report revealed that the Japanese economy expanded for the third consecutive by a robust annualized rate of 2.2% in Q3 lifting the annual rate of growth to 0.8%. The economy was mainly driven by a big boost from net trade which contributed 1.8 percentage points to growth in Q3. In contrast, personal consumption expanded modestly for the third consecutive quarter and private capital investment remained weak with growth close to zero. Overall, the report will provide further encouragement for the BoJ alongside the recent weakening of the yen. The BoJ is optimistic that above trend growth will continue in the coming fiscal year supported by fiscal stimulus. The positive economic developments could become more negative for the yen if evidence started to emerge that underlying inflation pressures were picking up.”