Forex Flash: Nikkie story suggests any Yen weakness to be faded - NAB
FXstreet.com (Barcelona) - The Nikkei news agency this morning appears to have authoritative insight into what will transpire in today's BoJ meeting, notes the NAB strategy team.
From NAB: "It says that the BoJ will approve a 2% inflation target (as opposed to the current 1% inflation 'goal') and that this will be unveiled in a joint BoJ and government statement several hours after the BoJ meeting concludes. The target is to be met over the 'medium term' according to the Nikkei, which looks to be the compromise wording agreed after a weekend of wrangling. The BoJ will also announce an Y10tn increase to the asset purchase programme (APP) the Nikkei reports."
If the Nikkei's carried news are correct, NAB sees potential for some disappointment among yen bears.
"Quite simply, this is not enough in our view to underpin gains in USDJPY and yen crosses to date. The adoption of a 2% inflation target but without a specific achievement date and the lifting of the APP target by Y10tn conforms to median estimates of analysts polled by various news organisations" NAB said.
NAB expands: "Consider this: in setting the 1.20 floor under the EURCHF exchange rate in Sept 2011, the SNB subsequently had to print the equivalent of 40% of GDP to back up its declaration. So far, yen weakness has come on nothing other than a declaration of intent by the government to achieve a weaker yen. Printing the equivalent of 40% of GDP to back up its intent would means about Y190tn. To date the BoJ APP totals Y101tn but is not yet completed. And of course additional BoJ balance sheet expansion has to compete with a Fed that is currently printing dollars at the rate of about Y7.65tn a month."
The surprise risk today, according to NAB, would be if the BoJ chose one of the following options:
"1. Including foreign bond buying in the APP; 2.focusing future asset purchases on securities other than JGBs and/or 3. Removed the 0.1% deposit rate floor. We suspect all of these may transpire in time, but not as early as today, hence our view that any additional yen weakness that follows today's BoJ announcement should, for now, be faded."
From NAB: "It says that the BoJ will approve a 2% inflation target (as opposed to the current 1% inflation 'goal') and that this will be unveiled in a joint BoJ and government statement several hours after the BoJ meeting concludes. The target is to be met over the 'medium term' according to the Nikkei, which looks to be the compromise wording agreed after a weekend of wrangling. The BoJ will also announce an Y10tn increase to the asset purchase programme (APP) the Nikkei reports."
If the Nikkei's carried news are correct, NAB sees potential for some disappointment among yen bears.
"Quite simply, this is not enough in our view to underpin gains in USDJPY and yen crosses to date. The adoption of a 2% inflation target but without a specific achievement date and the lifting of the APP target by Y10tn conforms to median estimates of analysts polled by various news organisations" NAB said.
NAB expands: "Consider this: in setting the 1.20 floor under the EURCHF exchange rate in Sept 2011, the SNB subsequently had to print the equivalent of 40% of GDP to back up its declaration. So far, yen weakness has come on nothing other than a declaration of intent by the government to achieve a weaker yen. Printing the equivalent of 40% of GDP to back up its intent would means about Y190tn. To date the BoJ APP totals Y101tn but is not yet completed. And of course additional BoJ balance sheet expansion has to compete with a Fed that is currently printing dollars at the rate of about Y7.65tn a month."
The surprise risk today, according to NAB, would be if the BoJ chose one of the following options:
"1. Including foreign bond buying in the APP; 2.focusing future asset purchases on securities other than JGBs and/or 3. Removed the 0.1% deposit rate floor. We suspect all of these may transpire in time, but not as early as today, hence our view that any additional yen weakness that follows today's BoJ announcement should, for now, be faded."
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