– USDJPY likely to break 99.00 while NZD and AUD to remain supported
USDJPY’s upside momentum has remained strong at the beginning of the week and the upward trajectory appears set to continue. An eventual test of 100 seems highly likely, though there are likely to be a number of barriers between 99-100. JGBs remain better bid after the BoJ offered to buy a total JPY 1.2trn under its new policy which we expect is likely to trigger domestic bond outflows. The investing behaviour of Japanese banks and life insurance companies will increasingly shape how the extent of the JPY’s weakness. We argue that larger JGB purchases at longer maturities by the BoJ could crowd out large domestic investors, encouraging domestic outflows that have been absent until now (see chart). Meanwhile, the NZD may continue to outperform this week following comments from RBNZ that low mortgage rates are one reason for rising house prices. Elsewhere, Thursday’s Australia employment report on Thursday will be important for the AUD. We expect that the currency can rebound if there is only a small amount (i.e. <20k) of payback in the data following an unusually strong February report of 71.5k.
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BNP Paribas