FXStreet (Barcelona) – FX Strategist at BofA-Merrill Lynch, Shusuke Yamada, sees another upside boost in USD/JPY if BoJ Governor Kuroda retraces back his earlier comments on JPY depreciation.
Key Quotes
“For the upcoming BoJ policy meeting, where no policy change is expected, the FX market will be focused on BoJ Governor Kuroda’s press conference. In particular, we expect Kuroda to be questioned on his statement of 10 June that “it’s hard to see the yen’s real effective exchange rate falling further”.”
“There has been some “talk-down” of his comment by identified and unidentified government officials. As our economists argue, however, we believe the comment was not a mere accident, but was partly meant to keep recently rising volatility in the FX market in check, particularly if it was resulting from an assumption that the BoJ (and/or Abe administration) prefers the yen’s decline into or beyond the mid- 120s.”
“Indeed, other than Minister of Finance Taro Aso’s remark that the yen’s recent move was rough when the USD/JPY was rising through 124 on 28 May, there had been no statements by Japanese officials to check the yen’s depreciation. This has helped the market rebuild speculative yen-short positions to a level not seen since June 2014.”
“Kuroda’s statement, however, broke the market’s assumption. Therefore, though it is too early to conclude the long-term implications for either exchange rates or monetary policy from Kuroda’s comment, we see the market reaction as valid as we had viewed the recent rally in USD/JPY owes much to technical and positioning factors. The comment has diminished the probability of a continuation of the rally in USD/JPY over the near term.”
“Reaffirmation of his comment is likely to help market scaling back further its expectation for a near-term rally in USD/JPY.”
“However, it is arguably difficult to gauge the BoJ governor’s true intentions, and we would look at his comments on FX carefully. If he practically rejects his earlier comment, the psychological barrier for 125 will disappear and the USD/JPY may regain its near-term momentum.”
(Market News Provided by FXstreet)