Fed Reignites The ‘Currency Wars’ Theme; Buy USD/JPY – Credit Suisse

From an FX perspective the key FOMC development was the enhanced focus on international developments, which is a clearly a new dovish force, and this message came through not just from the FOMC statement but also from Fed chair Yellen’s press conference, says Credit Suisse.

“The Fed’s decision reignites the idea that the world remains in a “currency wars” environment. Tighter US minus Germany and US minus Japan rate differentials argue for higher EURUSD and lower USDJPY, all things being equal. The key issue to consider is what kind of reactions we should expect from the ECB and the BOJ,” CS argues.

“With inflation expectations still low and now falling in the euro area and Japan, we assume tolerance for currency strength will be low. Our Japan economists have already factored in a fresh round of BOJ easing in October or November…Given that Fed’s dovish pirouette, we see little reason why a Kuroda BOJ – with its fondness for surprise – would not do the same,” CS projects.

“In this context, from a longer-term perspective we still see USDJPY levels below 120 as a buy, though it may require a test of recent lows in the 116-118 range first to catalyze enough BOJ angst to act,” CS advises. 

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From an FX perspective the key FOMC development was the enhanced focus on international developments, which is a clearly a new dovish force, and this message came through not just from the FOMC statement but also from Fed chair Yellen’s press conference, says Credit Suisse. ” The Fed’s decision reignites the idea that the world remains in a “currency wars” environment. Tighter US minus Germany and US minus Japan rate differentials argue for higher EURUSD and lower USDJPY, all things being

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