FXStreet (Delhi) – Robin Winkler, Strategist at Deutsche Bank, suggests to long USD/JPY pair as even a marginal decline in TANKAN’ inflation expectations could trigger a dovish step change in the BoJ’s policy stance and a rebuilding of speculative shorts over growing BoJ event risk in October could lift USD/JPY well above the September highs.
Key Quotes
“Kuroda and other BoJ policy-makers have argued that inflation expectations, and thus trend inflation, should be unaffected by transiently low energy prices. Falling core CPI—turning negative in August–has thus been seen as less important than core-core inflation. If inflation expectations dipped in Q3, however, this would be strong evidence that energy prices are dragging on trend inflation after all. As a result, the BoJ’s optimism on reaching the 2% inflation target in the first half of 2016 would appear increasingly complacent.”
“Last October, it was a concern over declining inflation expectation—at the time 1.7% for five years–that led BoJ to expand QQE. As the minutes noted, slippery inflation expectations are particularly problematic as corporates approach into year-end wage negotiations. The seasonal pattern to the transmission from inflation expectations to wages could therefore be an incentive for the BoJ to take steps to re-anchor inflation expectations rather sooner than later. Stay long USD/JPY.”
(Market News Provided by FXstreet)