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.
“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.”