All Eyes On Yellen: Sell JPY Rallies Vs EUR - Credit Agricole
Looking ahead it will depend on today's remarks from Fed Chair Yellen to drive sentiment further. However, even if she decides in favour of a more hawkish rhetoric it must still be noted that any tightening of monetary policy will depend on incoming data and will be gradual in nature. As long as improving US growth prospects compensate for higher rates overall sentiment does not need to weaken sustainably. Last but not least it must be noted that it is no certainty that Yellen will make any strong remarks with respect to monetary policy prospects.
According to the latest G7 communique, downside risks for the global economy have been rising and there remains a commitment to market determined FX rates. In addition it was stressed that there is a commitment to structural reforms in order to boost growth. As such there is no real surprise. In Japan, inflation data was mixed. In particular the more forward looking May Tokyo CPI slowed to 0.5% YoY (cons. -0.4%, prev. -0.3%). Hence, a trend of weakening price developments stays intact and that should keep the risk of the BoJ considering additional policy action intact. We stay of the view that JPY rallies should be sold, for instance against the EUR.*
Credit Agricole maintains a long EUR/JPY position from May 12.