FXStreet (Delhi) – Research Team at NAB/BNZ, suggests that currency shenanigans from China and softer oil prices have triggered a JPY safe haven bid.
Key Quotes
“Risk aversion since the start of the year courtesy of currency shenanigans from China and softer oil prices have triggered a JPY safe haven bid. In December USDJPY traded in a ¥120.01- ¥123.67 range and in contrast over the past week the pair has remained contained within a ¥116.70- ¥118.38 range.
In recent years QE and probably more importantly the expectations of QE have played a significant role in the direction of this currency pair. In Chart 1 we can see that since 2007, the large deviations in our predicted USDJPY have coincided with the anticipation of new QE programs. Initially, the start and expectations of QE from the US pushed the USDJPY below our modelled level and more recently QE announcements from Japan have pushed USDJPY above the predicted level.
Looking ahead, our analysis shows that 10y US Treasury yields have a tendency to move lower in the early months of the Fed tightening cycle, before a rising trend is re-established. As such our USDJPY forecast shows the USDJPY trading to a low of ¥115, before a re-emergence of JPY weakness is re-established.
For now our base case scenario assumes no further stimulatory policies from the BoJ. In spite of its staunch rhetoric, we think the Bank remains reluctant to increase its current (¥80 tn. annual rate) QE programme. If the BoJ does intensify QE – and we acknowledge that the risks are rising – this may well come in the context of a still-stronger JPY, in which case implications for our forecasts will be limited.
Looking at the calendar over the next fortnight, the BoJ meets 29 January. While the 2% price stability target should remain in place, we see inflation projections moving lower driven by a delay in the expected oil price rebound. Similarly, while its strong rhetoric is also expected to remain unwavered we do not anticipate a material change to the current QE programme.”
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