The recent BoJ inflation goal announcement and QE expansion caught the market by surprise. Since the announcement, USD-JPY has reached nine-month highs. We think the price action looks overdone.
The knee-jerk weakening of the currency on the back of an easing announcement looks familiar. Previously we observed similar reactions in USD, GBP and EUR, only to see the currencies bounce again. The same is likely to happen in USD-JPY.
The expanded QE programme in Japan is unlikely to lead to a large scale capital outflow. As a result we believe USD-JPY will head back down once the market gets some time to digest the news. Furthermore the move will be accelerated by a weaker USD in the second half of the year once the US presidential election draws nearer.
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Global Research