JPY: Will history repeat itself? - Nomura

In the previous synchronised global expansion and monetary tightening in the mid-2000s JPY traded weakly, but there was short-term “global risk reduction” in Q2 2006, points out the research team at Nomura.

Key Quotes

“We may be experiencing a similar situation currently. There are notable similarities and interesting differences, but the 2006 period showed that fundamental strength in the economy likely calms financial volatility, while for JPY to change trend more reductions in positions and/or changes in the US’s FX policy stance may be necessary. A notable difference is that currently the expected expansionary fiscal policy by overseas authorities will widen monetary policy divergence further.”

“We think this will be a medium term positive for yen-crosses. At the same time, we think fiscal stimulus at this point of the cycle will increase uncertainty, leading to a bumpier path in yen-crosses, even with support from monetary policy divergence. We also note that USD stabilised after US long-term yields stabilised in Q2 2006.”