FXStreet (Barcelona) – Derek Halpenny, European Head of GMR at Bank of Tokyo-Mitsubishi UFJ, notes Kuroda’s view on inflation and REER, with the Bank of Japan Governor expecting the annual inflation rate to move higher in H2 and REER to refrain from weakening further.
Key Quotes
“Kuroda is maintaining that the annual inflation rate will start to move higher in the second half of the year as the oil price drop fades from the annual inflation rate. The timing of the target being reached is unchanged with this happening in the first half of FY2016.”
“Of course from an FX perspective, the markets were eager to hear an update on his comments on the yen. On his comment that the REER wasn’t likely to weaken further, Kuroda repeated his clarification that he didn’t comment on a level or give a view about the nominal bilateral exchange rates, adding that the REER is a “complicated” concept.”
“One angle Kuroda is getting at here is that based on his optimistic view on inflation, he’s suggesting that inflation itself will help lift the REER. Secondly, USD/JPY can easily move higher but as long as the dollar moves by a larger amount versus other currencies then the trade-weighted yen would strengthen. That in fact is exactly what we are forecasting. And for sure, with the REER at levels not seen since the 1970s his comment certainly makes sense.”
“Still, the authorities must also be preparing for the Fed lift-off and being more balanced in their rhetoric on the yen will no doubt help in lowering volatility if, as we expect, the dollar begins to strengthen once again.”
(Market News Provided by FXstreet)