– Weaker JPY trend to persist
USDJPY is inching closer to the 100 level, while JPY crosses continue to perform strongly (EURJPY at early 2010 highs, AUDJPY close to pre-crisis 2007 peaks). JPY saw a short-lived bounce after BoJ Governor Kuroda suggested that policy adjustments are unlikely on a monthly basis and that policy actions do not target the exchange rate. The latter is consistent with the message from the G7/G20 in February, but this does not change the fact that the BoJ has got the green light to pursue aggressive monetary easing. The JPY bounce proved to be short-lived on hawkish leaning FOMC minutes (released earlier than usual) and the markets maintain a strong bias to sell into any JPY bounces. With the scale of the BoJ operations (by end 2014, the BoJ’s balance sheet is likely to have expanded to USD 2.9tn from USD 1.6tn), and their likely impact on the behaviour of longer-term domestic investors, we have revised our JPY outlook and forecasts. We forecast USDJPY rising to 102 at the end of Q2, 103 at the end of Q3 and 105 at year end. Meanwhile, EURJPY and AUDJPY are likely to appreciate significantly reach 140 and 116, respectively, this year (see table below). For a more detailed analysis, please see FX Strategy Flash “JPY: Further Weakness Ahead”.
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BNP Paribas