USD/JPY – NEUTRAL BIAS – (104.00-107.00)
Market expectations of added monetary easing and fiscal stimulus have been building, with hopes of a mixture of monetary and fiscal policy management in the form of helicopter money. These expectations are likely to support the USD/JPY lower bound at around 104.00. However, even as USD/JPY has been rising, details about policies to stimulate and enhance Japan’s growth momentum have been scarce.
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USD/JPY may top out at between the 106.00 and 107.00 levels. Japanese exporters could also limit the upper bound for USD/JPY close to month’s end by selling USD/JPY.
Prime Minister Abe met with ex-Fed Chair Ben Bernanke this week for advice on ending deflation. We do not expect any helicopter money, as past experience shows that sizeable fiscal stimulus and monetary expansion are unlikely to boost Japan’s growth potential. Any comments by policymakers may further stress the markets, but are unlikely to affect the direction of USD/JPY ahead of the July 28th -29th meeting.