JPY: Back to 116-118 range – BofAML

By FXStreet FXStreet (Delhi) – Shusuke Yamada, FX Strategist at BofAML, notes that the USD/JPY has rebounded after the ECB meeting and the options market has increased expectations for BoJ action.

Key Quotes

“However, we believe it is too early for the BoJ to make a decision and March or April will be a more likely timing. The BoJ needs to weigh one risk against another. If they stay on hold despite another downgrade of its inflation outlook and delay over the expected timing of achieving the 2% price stability target, the market may question the BoJ’s commitment.

On the other hand, any potential market impact of additional easing risks being absorbed by volatile market conditions caused by global factors would signal the limit of BoJ’s ammunition.

In both cases, what is at stake is the BoJ’s credibility, but the latter risk may be more significant, judging from the unstable global market and economic conditions. USD/JPY also seems to have escaped from the danger zone around 115 for now, not only because of expectations for the BoJ’s action, but probably thanks to expectations for ECB easing, RMB’s recent stability, and a (small) oil price rebound.

In our main scenario of no policy change, USD/JPY is likely …read more

Source:: FX Street