Forex Flash: Not expecting a big retracement in JPY weakness - RBS

FXstreet.com (Barcelona) - The BoJ meeting today is widely anticipated to deliver an additional 10 tn in asset purchases, while. the BoJ and government are also expected to sign a policy accord setting out a commitment to target inflation of 2% over the medium term, notes Greg Gibbs, FX strategist at RBS.

Greg adds: "It is reported that the accord will call on the BoJ to explain quarterly to parliament what it is doing to achieve the inflation target. This reporting schedule is quite significant and should help bolster the credibility in the commitment to the target. It suggests that the BoJ may feel it needs to front parliament with further monetary easing plans if it cannot forecast inflation hitting the target within a reasonable time frame (say within three years), even if the medium term is not clearly defined."

Against calls of possible sustained Yen weakness should BoJ barely meet expectations, "it is hard to ignore the ground-breaking policy steps under-way at the BoJ" Greg says.

"Both the government and the BoJ will still have more policy ammunition after today's meeting. By early April, it will have a new BoJ Governor and deputies that will be empowered and motivated to generate inflation. As such, we are not expecting a big retracement in JPY weakness. In fact we see a greater probability that any further correction in USDJPY gains will be modest and the pair may continue to trend higher over coming months" the strategist concludes.