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17 Mar 2014
Flash: Look to buy USD/JPY as BoJ steps up guidance for more easing - RBS
FXStreet (Bali) - According to Greg Gibbs, FX Strategist at RBS, making reference to an article published by Asahi over the weekend, BoJ Kuroda may have begun to step up guidance for easier policy if needed.
Key Quotes
"The lack of concern by the BoJ over the recent fall back in Nikkei, a stronger JPY, a stalling in inflation indicators, and more mixed economic reports in Japan including a deterioration in the recent export performance, is beginning to generate an impression that Kuroda and the BoJ are not as serious about meeting their higher inflation target and reluctant to take more monetary action."
"Kuroda made comments reported in the press over the weekend designed, it appears, to keep the faith that his team will do more policy easing if required, and will be more responsive the events after the April tax hike."
"An Asahi news interview with Kuroda emphasised his concern that the government continues with plans towards fiscal sustainability. He expressed his support for the April consumption tax hike from 5 to 8% and further to 10% next year, and reservations on discussions about cutting the corporate tax rate."
He said, "We have constructed our economic outlooks while including the two-stage increase in the consumption tax rate," The report says that, "He explained that the record level of monetary easing measures that started in April 2013 have been implemented on the precondition that the consumption tax rate would eventually reach 10 percent."
"As he has for over a year, Kuroda expressed his view that the economy will cope with the tax hikes and still be able to achieve his two percent inflation target. He argued that the recent fall in exports would rebound with a recovery in the global economy. Whether you agree or not with Kuroda's view (most see it as too optimistic) it should be seen as a commitment to achieve the targets. In other words, Kuroda is saying further policy easing is not yet needed to achieve the target. This is much different than we are giving up because the targets are too hard and policy is doing all it can (a message that was predominant during the pre-Kuroda Shirakawa led BoJ)."
The final message in the article is dovish. It prints," He indicated that consideration for further measures would be made at an early stage depending on how the economy reacts to the higher consumption tax rate." And quotes Kuroda, "There would be no need to wait until all data (showing a worsening of the economy) is available."
"We continue to look for opportunities to buy USD/JPY. With USD/JPY approaching lows for the year, this article may be a sign that the BoJ is about to step up its rhetoric to increase expectations of further easing. This may help stabilise the USD/JPY and suggests it is time to again take a long position."
"The BoJ should be looking at the recent slide in the Nikkei and rise in the JPY as a sign that its QQE policy has lost traction. Such a policy should be aimed at boosting asset prices and weakening the currency to generate hiker inflation expectations. Neither have occurred since late-January. The BoJ is probably right not to panic into immediately easing ahead of the consumption tax hike, but it should be soon attempting to guide expectations of preparedness to do so to achieve its target."
Key Quotes
"The lack of concern by the BoJ over the recent fall back in Nikkei, a stronger JPY, a stalling in inflation indicators, and more mixed economic reports in Japan including a deterioration in the recent export performance, is beginning to generate an impression that Kuroda and the BoJ are not as serious about meeting their higher inflation target and reluctant to take more monetary action."
"Kuroda made comments reported in the press over the weekend designed, it appears, to keep the faith that his team will do more policy easing if required, and will be more responsive the events after the April tax hike."
"An Asahi news interview with Kuroda emphasised his concern that the government continues with plans towards fiscal sustainability. He expressed his support for the April consumption tax hike from 5 to 8% and further to 10% next year, and reservations on discussions about cutting the corporate tax rate."
He said, "We have constructed our economic outlooks while including the two-stage increase in the consumption tax rate," The report says that, "He explained that the record level of monetary easing measures that started in April 2013 have been implemented on the precondition that the consumption tax rate would eventually reach 10 percent."
"As he has for over a year, Kuroda expressed his view that the economy will cope with the tax hikes and still be able to achieve his two percent inflation target. He argued that the recent fall in exports would rebound with a recovery in the global economy. Whether you agree or not with Kuroda's view (most see it as too optimistic) it should be seen as a commitment to achieve the targets. In other words, Kuroda is saying further policy easing is not yet needed to achieve the target. This is much different than we are giving up because the targets are too hard and policy is doing all it can (a message that was predominant during the pre-Kuroda Shirakawa led BoJ)."
The final message in the article is dovish. It prints," He indicated that consideration for further measures would be made at an early stage depending on how the economy reacts to the higher consumption tax rate." And quotes Kuroda, "There would be no need to wait until all data (showing a worsening of the economy) is available."
"We continue to look for opportunities to buy USD/JPY. With USD/JPY approaching lows for the year, this article may be a sign that the BoJ is about to step up its rhetoric to increase expectations of further easing. This may help stabilise the USD/JPY and suggests it is time to again take a long position."
"The BoJ should be looking at the recent slide in the Nikkei and rise in the JPY as a sign that its QQE policy has lost traction. Such a policy should be aimed at boosting asset prices and weakening the currency to generate hiker inflation expectations. Neither have occurred since late-January. The BoJ is probably right not to panic into immediately easing ahead of the consumption tax hike, but it should be soon attempting to guide expectations of preparedness to do so to achieve its target."