JPY: Yen supported by the reduced BOJ easing expectations - MUFG
9 December 2015, 13:43
0
27
Derek Halpenny, European Head of GMR at MUFG, suggests that the
speculation remains that the BOJ may coincide the fiscal stimulus
signalled by the government with additional monetary easing, perhaps as
early as Q1 2016 but the upward revision to Q3 real GDP and the
machinery orders data released today suggest that the BOJ can persist
with its current stance for now.
Key Quotes
“The bright spot in the revised GDP data yesterday was the upward revision to business spending. The initial report showed a 1.3% Q/Q drop in business spending but this was revised to a 0.6% gain.”
“The outlook for business spending was further improved by the core machinery orders increase of 10.7% gain in October, which followed a 7.5% gain in September. The market expected a drop.”
“But crucially, the data this week makes it a lot less likely that the BOJ will consider additional monetary easing in the near-term. We are of the view that the scale of current easing restricts the scope for additional easing in any case, but the signs of improvement in the corporate sector will raise hopes that not only will there be an improvement in business spending but also in wage growth.”
“That will certainly allow for the BOJ to continue hoping for wage gains to soon start materialising to an extent that supports inflation. The BOJ is already on track for owning nearly 40% of the JGB market by the end of next fiscal year if the current pace of JGB purchases is maintained and we see very little scope for further QE measures going forward.”
“Similarly, we see limited scope for further yen weakness from here too. No doubt going into the FOMC meeting this day next week means USD/JPY remains well supported. However, any post-FOMC spike in USD/JPY may well prove short-lived with valuation and a rapidly expanding current account surplus providing further reason against continued yen depreciation.”
Key Quotes
“The bright spot in the revised GDP data yesterday was the upward revision to business spending. The initial report showed a 1.3% Q/Q drop in business spending but this was revised to a 0.6% gain.”
“The outlook for business spending was further improved by the core machinery orders increase of 10.7% gain in October, which followed a 7.5% gain in September. The market expected a drop.”
“But crucially, the data this week makes it a lot less likely that the BOJ will consider additional monetary easing in the near-term. We are of the view that the scale of current easing restricts the scope for additional easing in any case, but the signs of improvement in the corporate sector will raise hopes that not only will there be an improvement in business spending but also in wage growth.”
“That will certainly allow for the BOJ to continue hoping for wage gains to soon start materialising to an extent that supports inflation. The BOJ is already on track for owning nearly 40% of the JGB market by the end of next fiscal year if the current pace of JGB purchases is maintained and we see very little scope for further QE measures going forward.”
“Similarly, we see limited scope for further yen weakness from here too. No doubt going into the FOMC meeting this day next week means USD/JPY remains well supported. However, any post-FOMC spike in USD/JPY may well prove short-lived with valuation and a rapidly expanding current account surplus providing further reason against continued yen depreciation.”
