25 Feb 2016
Strong Yen increases further easing chances from BoJ - Commerzbank
Thu Lan Nguyen, Research Analyst at Commerzbank, suggests that the introduction of negative interest rates by the Bank of Japan (BoJ) has not hit the Japanese yen on a sustainable basis.
Key Quotes
“Yet this is likely to have been the fundamental aim of this measure. For, in contrast to the central bank’s hopes, Japanese wages have not increased sufficiently to exert upward pressure on consumer prices. According to December’s wage data, contractual wages rose by a mere 0.6% year-on-year.
Moreover, both the winter and the summer bonus turned out lower than in the previous year. A weak currency therefore is the only hope left for the BoJ to increase import prices and thus raise inflation pressure. At present, the BoJ expects its 2% inflation target to be reached in Q2/Q3 2017. However, if increased demand for safe havens were to keep the yen on an uptrend , the central bank will also have to give up on this target soon.
The strong yen thus increases the chances that the BoJ will further ease monetary policy as soon as at its next meeting in March. However, speculation that the BoJ may even intervene on FX markets in an attempt to decelerate yen appreciation is unjustified, in our view. After all, such a step would violate the G7 states’ London Accord of 2013 (ban on exchange rate manipulation).”
Key Quotes
“Yet this is likely to have been the fundamental aim of this measure. For, in contrast to the central bank’s hopes, Japanese wages have not increased sufficiently to exert upward pressure on consumer prices. According to December’s wage data, contractual wages rose by a mere 0.6% year-on-year.
Moreover, both the winter and the summer bonus turned out lower than in the previous year. A weak currency therefore is the only hope left for the BoJ to increase import prices and thus raise inflation pressure. At present, the BoJ expects its 2% inflation target to be reached in Q2/Q3 2017. However, if increased demand for safe havens were to keep the yen on an uptrend , the central bank will also have to give up on this target soon.
The strong yen thus increases the chances that the BoJ will further ease monetary policy as soon as at its next meeting in March. However, speculation that the BoJ may even intervene on FX markets in an attempt to decelerate yen appreciation is unjustified, in our view. After all, such a step would violate the G7 states’ London Accord of 2013 (ban on exchange rate manipulation).”