Volatility in USD/JPY and cross/JPY, triggered by a sharp reversal in the Nikkei stock market was been the main story in Asian trade. There has been no specific catalyst for the moves in the Japanese markets. In an address overnight, BoJ governor Kuroda stated that the BoJ had announced “sufficient monetary easing”, wished to “avoid increasing volatility in the bond market” and that he “doesn’t expect yields to jump”. Japanese 10-year bond yields are now close to 40bpts above their early April lows. In our view, as Japanese bond yields rise the chances of a BoJ policy response also increase. A key objective of the BoJ’s new policy is to keep JGB yields low. Kuroda next speaks on Sunday at the Japan Society of Monetary Economics (5:50am). Given our long held view that the deterioration in Japan’s current account is driving a structurally weaker JPY, we continue to favour a medium-term strategy of buying USD/JPY on dips, particularly below 100.50.
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Commonwealth Bank