Forex Flash: Global optimism evident in Asia session – BTMU
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USD/JPY
FXstreet.com (Barcelona) - Derek Halpenny, European Head of Global Market Research at the Bank of Tokyo Mitsubishi UFJ feels that optimism over the outlook for the global economy remains firmly in place after another strong showing for Asian stocks overnight.
He sees that Japan was the out-performer, with the Topix Index up 1.5%, representing a climb of 29.4% in little over two months, based on optimism of a change in economic and monetary policy by the new government. He adds, PM Abe has very high expectations to meet over the coming months and he is managing to manage them for the moment, speaking today in the Diet to state the changing BoJ law was still an option. He also added that improved fiscal health would be partly achieved through economic revival.
Halpenny sees that the focus is very much on growth and who the next Governor of the BoJ will be. He writes, "One potential candidate for BOJ Governor - Kikuo Iwata - stated that the BOJ should aim to double its current account balance by buying longer-term JGBs. It is the expectation of what's to come that supports the current optimism. However, it is also worth noting that the BOJ action for 2013 is in fact very aggressive already. The Asset Purchase Program is due to increase from about JPY 65trn to JPY 101trn at the end of the year and in terms of GDP that equates to about 21% of Japan's nominal GDP."
Based on roughly USD 1.0trn of purchases by the Federal Reserve this year, its estimated asset holdings (MBS & USTs) will also reach an equivalent of about 21% of GDP. So for the first time since the financial crisis began, Halpenny sees that the BOJ this year is estimated to fully catch up with the Federal Reserve in terms of quantitative easing. He writes, "So it is worth noting that assuming further action is taken under a new Governorship in April, the BOJ is on course to become more aggressive than the Federal Reserve for the first time."
That is certainly one key development that adds credence to the USDJPY move we have had in recent months. Some slowdown in US economic activity as fiscal austerity hits the economy is still likely to trigger some degree of correction in USDJPY but he feels that hope of more aggressive action from the BOJ should mean that when the correction comes it is reasonably shallow - to the 86-87.00 level.
He sees that Japan was the out-performer, with the Topix Index up 1.5%, representing a climb of 29.4% in little over two months, based on optimism of a change in economic and monetary policy by the new government. He adds, PM Abe has very high expectations to meet over the coming months and he is managing to manage them for the moment, speaking today in the Diet to state the changing BoJ law was still an option. He also added that improved fiscal health would be partly achieved through economic revival.
Halpenny sees that the focus is very much on growth and who the next Governor of the BoJ will be. He writes, "One potential candidate for BOJ Governor - Kikuo Iwata - stated that the BOJ should aim to double its current account balance by buying longer-term JGBs. It is the expectation of what's to come that supports the current optimism. However, it is also worth noting that the BOJ action for 2013 is in fact very aggressive already. The Asset Purchase Program is due to increase from about JPY 65trn to JPY 101trn at the end of the year and in terms of GDP that equates to about 21% of Japan's nominal GDP."
Based on roughly USD 1.0trn of purchases by the Federal Reserve this year, its estimated asset holdings (MBS & USTs) will also reach an equivalent of about 21% of GDP. So for the first time since the financial crisis began, Halpenny sees that the BOJ this year is estimated to fully catch up with the Federal Reserve in terms of quantitative easing. He writes, "So it is worth noting that assuming further action is taken under a new Governorship in April, the BOJ is on course to become more aggressive than the Federal Reserve for the first time."
That is certainly one key development that adds credence to the USDJPY move we have had in recent months. Some slowdown in US economic activity as fiscal austerity hits the economy is still likely to trigger some degree of correction in USDJPY but he feels that hope of more aggressive action from the BOJ should mean that when the correction comes it is reasonably shallow - to the 86-87.00 level.
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