Forex Flash: USD/JPY poised for sell bias – Westpac

In particular, the February 14 BoJ meeting looms large on the horizon for the JPY for a couple of reasons. Firstly, it is the anniversary of the February 14 move last year, which saw the BoJ shift its inflation objective to 1%, engineering a sharp move higher in USD/ JPY at the time. The other reason is that it comes just ahead of G20 (finance ministers and central bank governors) in Moscow February 15-16th.

According to Sean Callow, a Global FX Strategist at Westpac, “We have maintained a highly skeptical view on the
 BoJ’s willingness to enact the kind of very aggressive QE required to reach anywhere near the 2% inflation target.
 Our simulations tell us that under current plans, the BoJ will actually be winding down the weighted average maturity of its asset purchase program late this year and into 2014. Thus, we remain highly skeptical and get the sense that markets will start to think the same coming into the BoJ/ G20 meetings.”

Moreover, “the escalation of tensions between China and Japan has the makings of a recipe for a period of ¥ strength. So, we maintain a sell bias on the USD/JPY for another week, however our patience is wearing very thin. If the G20 does not raise any concerns about ¥ weakness next week, we will be forced to shift back to neutral.” Callow warns.