USDJPY Bid Post-FOMC
USDJPY remains well supported in the wake of the Fed and BoJ meetings, both of which delivered ‘no change’ verdicts. To be sure, there were no major surprises in either decision, but the respective policy nuances suggest a gradual Fed-BoJ divergence that should keep USDJPY risks skewed towards the upside – and our three-month target of 85. Notably, the FOMC upgraded assessments of the US labour market plus capex, and no longer cited “slowing in global growth” as a caveat. Perhaps more importantly, the FOMC now foresees “moderate economic growth” in the longer run, a step up from “modest” previously. The Fed also acknowledged that “strains in global financial markets have eased”. Though the late 2014 rate guidance was reaffirmed, US dollar bulls could glean encouragement from the fact that there was no move toward any further QE. Our US economics team expects the Fed to stay on hold well into next year, before hiking rates in H2 2013. The BoJ is unlikely to be in such a position. Yesterday’s decision to leave the Asset Purchase Programme (APP) unchanged should not obscure the easing bias evident in the expansion and extension of the special lending facility for growth industries, not to mention the dissent from Board member Ryuzo Miyao, who proposed a JPY 5 trn boost to the APP. The policy spotlight now shifts to the Norges Bank meeting later today. We expect no change in the headline policy rate, but expect significant verbal intervention by Governor Olsen on the strong currency. Overnight, USDJPY traded between 81.97-83.09, with EURUSD at 1.3052-1.3191. Finally, note our latest fundamental trade recommendation to buy a 2-month CADCHF call spread.
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UBS Investment Bank