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Yen Will Extend Slide on Bond-Purchase Uncertainty, Analysts Say - BLOOMBERG

JUNE 14, 2024

(Bloomberg) -- The yen is likely to keep weakening after the Bank of Japan disappointed the market by failing to provide many details about its plans to cut bond purchases, analysts and strategists said.

At the same time, declines in the currency may be limited after BOJ Governor Kazuo Ueda signaled at his press conference that the reduction in debt buying will be substantial and a rate hike is possible in July, they said. 

Here’s what analysts and strategists had to say:

Post-BOJ conference

Hirofumi Suzuki, chief foreign-exchange strategist at Sumitomo Mitsui Banking Corp.

Ueda’s press conference was less dovish as he didn’t rule out a reduction in bond purchases of a reasonable size or the possibility of a July rate hike. Since the decision to reduce the amount is postponed, the trend of yen depreciation will not change. However, excessive yen depreciation isn’t expected.

The dollar’s strength and the yen weakening to the 158 level will likely extend to 160. However, rather than a rapid weakening of the yen, it will probably depend on the US to see if the yen will gradually weaken.

Homin Lee, a senior macro strategist at Lombard Odier

Ueda’s press conference merely reinforces our view that the BOJ officials remain biased to change the benchmark rate and JGB purchase program in the next meeting. This has been our base case for quite some time, and we think the hurdle to skip again will be very high given the amount of hints Ueda dropped for these tweaks during the press conference.

I think the guidance from the press conference will be sufficient to create that resistance for USD/JPY below 160. If so, the equity market could be more range-bound in the near-term.

Yujiro Goto, head of Japan currency strategy at Nomura Securities Co.

This time, BOJ Governor Ueda, reflecting on the previous April press conference, avoided making statements that might sound dovish and promote yen depreciation, and succeeded in avoiding an acceleration of yen depreciation from 158 per dollar.

On the other hand, there were no hawkish surprises in the BOJ’s decision itself, and it is difficult to see how this could swing the yen higher. If other factors, such as US economic indicators, cause the yen to weaken, there will be talk of intervention. Although the BOJ succeeded in avoiding an acceleration in the yen’s depreciation, other factors are needed to push the yen higher.

Pre-BOJ conference

Tsutomu Soma, a bond and currency trader at Monex Inc.      

The pace of the BOJ’s tightening is expected to be even slower than what the market is expecting, and the central bank seems to be very cautious, spurring yen selling. The yield gap may stay until the Fed delivers its interest-rate cuts, making it difficult to maintain the dollar-long positions versus the yen and that would mean the bias remains for the yen to remain weak.

Alvin T. Tan, head of Asia FX strategy at RBC Capital Markets

The BOJ’s decision was much more dovish than the market expectation for a clear reduction in the bond-buying amount to be announced today. It’s not at all clear at this point if the BOJ actually decided on a specific reduction of the bond-purchase amount, or it will only decide on this at the next meeting.

The dovish decision means upside pressure on USD/JPY will persist, as the market is likely to push it above 158, despite the drop in US yields lately.

Andrew Jackson, head of Japan Equity Strategy at Ortus Advisors Pte

The market is definitely not taking it as a step in the right direction, judging from the immediate reaction in the yen. I don’t think there was too much expectation priced in for this, but its pretty obvious that they need to be cutting back on their JGB purchases faster then they are signaling to the market. If they don’t do this, and continue with currency intervention, its a huge, unnecessary waste of money — like “robbing from Peter to pay Paul” situation.

Jun Rong Yeap, a market strategist at IG Asia Pte

The decision paves the way for Japanese equities to move higher and the yen weaker, with relief that policy steps taken will be more measured. That will probably offer markets with a dovish takeaway from the central bank and some acceptance from authorities for a weaker yen to provide continued support for the economy, which give the green light for markets to resume finding traction in yen carry trades.

Tomo Kinoshita, global market strategist at Invesco Asset Management Japan    

I see this as a positive move as in the process of determining the amount, there was a risk of an excessive yield jump if the decision was made in a poor manner. This will allow them to keep the risk as low as possible while moving towards tightening. The reduction itself was announced to the market today after all. This will work positively to the stock market as they avoided the risk of sudden rise in yields. 

Hebe Chen, an analyst at IG Markets

The stock market would relish an extended period of stability that a cautious central bank could provide with a wait-longer-to-see approach. However, for the FX market, although a weakening dollar is now anticipated, a full-size recovery of the yen still seems far out of reach.

The cautious tone observed in the BOJ’s statement today likely stems from the weakness of the economy, signaling that any further changes to its monetary policy will proceed in even smaller and slower steps. 

--With assistance from Momoka Yokoyama, Aya Wagatsuma, Yumi Teso, Masaki Kondo, Daisuke Sakai and Saburo Funabiki.


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