The Yen: Why it’s wrong to be long – Goldman Sachs

By FXStreet Research Team at Goldman Sachs, notes that the big outlier has been the Yen, which has strengthened sharply following the BoJ’s shift to negative rates at its January meeting, with markets choosing to interpret the shift as a signal that the “BoJ is out of bullets.”

Key Quotes

“We strongly disagree. Fundamentally, we think this is about whether the BoJ is backing away from its 2 percent inflation target and we see no indication – whatsoever – that this is the case. In fact, as we argued in our last FX Views, the BoJ’s implementation of QQE compares favourably to the ECB QE program, given how aggressively the JGB yield curve has been flattened and stabilized. This means that portfolio rebalancing (out of JGBs into risk assets, including other currencies) is underway in Japan, which is a force for a weaker Yen even before additional BoJ easing (which we anticipate) is taken into account.

GPIF quarterly investment flow into foreign stocks and bonds: The main message is that – although the portfolio shift from the GPIF into foreign assets is large – it certainly does not account for the pick-up in outward investment from Japan that looks to have accelerated from 2014 onwards. …read more

Source:: FX Street