Forex Flash: Tracking yields in Japan – RBS

FXstreet.com (Barcelona) - This week’s noteworthy event could be announcement of monetary measures at the BoJ’s policy meeting that is due on 3-4 April. Interest levels in the meeting are high because not only would this be the first such meeting for BoJ Governor Kuroda and two new deputies but also because the market has expectations of a positive synergy with ‘Abenomics’.

In fact, the markets are increasingly discussing the likely positive effect of a continued rise in stock prices since last November on business activities, and consensus economic forecasts for the first half of this year are rising. According to Junko Nishioka, Chief Economist at RBS, “The Japanese economy’s potential growth rate still remains sluggish at around 0.7% on an annualized basis and deflationary pressure persists, however we think the economic fundamentals have become healthy enough to foster a virtuous circle.”

In contrast to other advanced economies, balance sheet repayment has been effectively resolved and the debt burden remains fairly low so far. In our view, financial conditions also seem accommodative enough to encourage proactive corporate investments. Despite a declining nominal yield that is lower than that for other currencies’, a prolonged yen appreciation had countervailed the effectiveness of the easy monetary policy until November last year. So, a weaker yen policy has effectively promoted easy monetary conditions.