Japan: High hurdle for the BoJ to reverse yen strength – MUFG

Lee Hardman, Currency Analyst at MUFG, suggests that the Fed’s more hawkish rhetoric combined with dovish comments from BoJ Governor Kuroda at Jackson Hole have helped lift USD/JPY further above key support at the 100.00-level. 

Key Quotes

“Governor Kuroda stated strongly that the “there is no doubt that there is ample space for additional easing in each of the three dimensions”. The comments provide pushback over building scepticism amongst market participants that the BoJ is running out of room for manoeuver on the monetary policy front which has been fuelled by the BoJ’s reluctance to expand its annual monetary base and JGB purchase target further so far this year.

Building doubts over the effectiveness of the BoJ’s policy easing have been contributing to the sharp reversal of yen weakness which was initially triggered by investor optimism over Abenomics policies. The BoJ will have another chance to reboot investor confidence in Abenomics at their meeting on the 21st September when they will also complete their comprehensive assessment of current policy easing. The problem the BoJ faces is that the hurdle is now very high to impress the market with new easing measures. As a result, the BoJ will struggle to reverse the yen strengthening trend on a sustainable basis unless more radical easing measures are adopted which we believe are unlikely in the near-term.”