JPY: BoJ foreign bond purchases are not likely - MUFG

Lee Hardman, Currency Analyst at MUFG, notes that the yen continues to trade on the on the back foot following Jackson Hole which has resulted in USD/JPY rising back above its 55-day moving average at just below the 103.00-level for the first time since the end of last month.

Key Quotes

“The next key resistance area for the pair comes in between the 104.00 and 105.00-levels where the downtrend line from the start of February is located and the top of the Ichimoku cloud. Facing such strong technical resistance, a stronger trigger will likely be required for yen weakness to extend much further in the near-term.

The upcoming BoJ & Fed policy meetings which are both scheduled to take place on the 21st September are viewed as a potential trigger for further USD/JPY upside in the near-term. If the BoJ eases monetary policy on the same day as the Fed tightens it could provide a more material uplift for USD/JPY even if it proves only temporary.

The market’s focus on the BoJ’s upcoming policy meeting was heightened overnight following comments from BoJ board member Funo. He stated that the BoJ decided to have a comprehensive assessment as uncertainties over their price goal heighten, and the review will mull how to get to the CPI target as soon as possible. He still sees Japan reaching its 2% CPI target in FY2017 although acknowledged that the risks to the outlook are large. He does not expect to see any debate at the BoJ’s upcoming policy meeting regarding changing the CPI target to 1% or 3%. Interestingly, he stated that the BoJ could theoretically purchase foreign bonds, but stressed that it was hard in reality and could not happen soon. Other G20 members are will not support more direct action from the BoJ to weaken the yen.”