Kuroda hints on monetary easing to offset tax hike key for JPY
The dominant driver for USDJPY will remain the US political impasse and we expect a moderately bearish bias as long as uncertainty persists, though not a sharp decline with positioning cleaner after the Fed tapering-induced clear-out after June. Today’s Bank of Japan meeting resulted in keeping policy unchanged while adding to the positive characterisation of the economy by raising the assessment on CAPEX. But comments from BoJ Governor Kuroda (press conference 08:25 BST as per Bloomberg) could impact JPY. Kuroda is likely to give his vote of appreciation for the fiscal reform underway. But more important will be hints on using additional monetary easing to offset fiscal tightening coming from the sales tax hike. At the last press conference on September 5th, Kuroda said the CB was ready to act if the tax hike threatens the achievement of the BoJ’s 2% price goal. We will only get to know whether there is any revision to the CPI forecasts released on October 31st at the semiannual outlook. At the margin, any suggestion that the BoJ may be particularly patient in assessing the impact of fiscal tightening on the economy (over the next 12 months) would be seen as less dovish and could support JPY today.
Read the full report: FX Daily
BNP Paribas