USD/JPY: More upside risks, 122.00 by end of March – Nomura

By FXStreet FXStreet (Bali) – Following the surprisingly dovish BOJ decision last Friday, Nomura maintains its end-March USD/JPY target at 122 and see more upside risks over the next few months.

Key Quotes

“The BOJ decided to introduce negative interest rates on excess reserves (IOER). While we saw a possibility of a rate cut, the introduction of negative rates at this juncture was a positive surprise. The Bank cut IOER by 20bp from +10bp to -10bp. The Bank also kept QQE programme unchanged, continuing JGBs purchases at a rate of JPY80trn per year, with ETF and REIT purchases as scheduled before.

The introduction of a three-tier system is better for risk sentiment than otherwise, as 1) the negative impact on bank profitability will be smaller, 2) it will enable the BOJ more aggressively cut if necessary. The Bank clearly stated that it can cut further when necessary, which suggests -10bp is not a lower bound. The BOJ referred to rates in Switzerland (-75bp), Sweden (-110bp) and Denmark (-65bp), all of which suggest the BOJ views much lower rates as possible.

To consider actions in the medium term, the composition of BOJ board will be worth monitoring. There are four dissenters (Mr. Kiuchi, …read more

Source:: FX Street