JPY: After the BoJ’s surprise – Deutsche Bank

By FXStreet FXStreet (Delhi) – Taisuke Tanaka, Strategist at Deutsche Bank, lists down what to watch in USD/JPY pair as it has swung back after the BoJ surprise.

Key Quotes

“The USD/JPY had fallen below 120 again. Having received many inquiries, we repeat our basic view. Immediately after the BoJ announced it was adopting negative interest rates, the USD/JPY rebounded to 121.69 (Bloomberg) by unwinding of the shorts. With the surprise impact having ended, we think the market will likely take a more sober look at the BoJ policy.

We think applying negative interest rates to a portion of the C/A deposit is unlikely to deliver a breakthrough in terms of meeting the 2% inflation target and overcoming global risk-averse symptoms. However, in terms of FX analysis, we saw it as effective in curbing JPY appreciation risk. There had been concerns of a worsening spiraling of risk-averse sentiment in the unlikely event of the USD/JPY falling below 115.

Adopting negative interest rates can preserve room for QE expansion and make further interest rate cuts possible, and thus puts in place measures to address risk-averse sentiment. It will also likely contribute to lower JGB yields and increase pressure for portfolio rebalancing to increase foreign bond …read more

Source:: FX Street