JPY: Fiscal Stimulus in Focus – Nomura
Yujiro Goto, Research Analyst at Nomura, notes that the USD/JPY continues to trade weakly, while Japan has its long holiday.
Key Quotes
“Disappointment
from the BOJ meeting last week is likely keeping downside pressure on
USD/JPY, while US data have been not strong, weakening USD momentum. As a
result, Japanese policy makers’ have been commenting more frequently on
JPY movements, as expected.
BOJ Governor Kuroda said on 2 May
that the current strength of JPY could have an unwelcome effect on the
economy, and the Bank is closely watching markets for potential impacts
on the economy and prices. These comments still do not suggest FX
intervention is imminent at above the 105 level, but we will keep
monitoring the level of verbal intervention carefully
Japanese
efforts to stimulate the economy via fiscal stimulus would be important
in gaining support for possible FX intervention. The US Treasury
released its report on foreign exchange policies of major trading
partners, where Japan was included as one of five countries in the
monitoring list.
Regarding the timing of the sales tax hike
decision, Prime Minister Abe is reported by Bloomberg (originally posted
by Kyodo) to have said he wanted to discuss how G7 members view the
global economy, suggesting the decision should be made after the G7
summit on 26-27 May.
The US Treasury report does not include
monetary easing as a factor in foreign exchange policies, which allows
the BOJ to keep a flexible policy stance, especially after the G7
summit. The BOJ disappointed the market last week, but Governor Kuroda’s
direct comments on the FX market suggest the likelihood of additional
easing has risen after the sharp appreciation of JPY. Japanese policy
responses from late May remain in focus for JPY movement, while the
near-term direction of USD/JPY still depends more on US data and USD
momentum.”
