6 Aug 2015
Policy implies USD/JPY higher, AUD/JPY, EUR/JPY lower - BAML
FXStreet (Guatemala) - Analysts at Bank of America Merrill Lynch explained that, overall, the upcoming policy meeting is unlikely to be an event to impact the FX markets significantly.
Key Quotes:
"USD/JPY higher, but EUR/JPY and AUD/JPY lower."
"Near-term risks in the domestic environment include political instability, which could exert marginal upward pressure on JPY."
"Externally, the US dollar is likely to strengthen further on the anticipated Fed rate hike. But it could also temporarily put downward pressure on the US and other stock markets, which in turn could be negative on the cross-yen pairs, and this may limit the near-term scope of increase in the USD/JPY."
"Over the medium term, though, we still expect policy differences to drive the market. Within this framework, although the BoJ is evidently much easier than the Fed or the BoE, which are clearly moving toward a rate hike, the BoJ’s easing bias is not strong as the RBA, ECB, or RBNZ, in our view. Accordingly, as reflected in forex price moves in July, we expect upward pressure on the USD/JPY and GBP/JPY to continue over the medium term, but expect the EUR/JPY and AUD/JPY to grind lower toward the end of the year. Our base case remains intact: the USD/JPY range trades during the summer before starting to move higher in the fall eventually to 125–130 by 1H16."
"At the upcoming policy meeting, we expect the BoJ to reaffirm its position relative to the other major central banks by taking a bullish stance on the economy and inflation and by reiterating that policy will stay on hold, albeit with an easing bias."
Key Quotes:
"USD/JPY higher, but EUR/JPY and AUD/JPY lower."
"Near-term risks in the domestic environment include political instability, which could exert marginal upward pressure on JPY."
"Externally, the US dollar is likely to strengthen further on the anticipated Fed rate hike. But it could also temporarily put downward pressure on the US and other stock markets, which in turn could be negative on the cross-yen pairs, and this may limit the near-term scope of increase in the USD/JPY."
"Over the medium term, though, we still expect policy differences to drive the market. Within this framework, although the BoJ is evidently much easier than the Fed or the BoE, which are clearly moving toward a rate hike, the BoJ’s easing bias is not strong as the RBA, ECB, or RBNZ, in our view. Accordingly, as reflected in forex price moves in July, we expect upward pressure on the USD/JPY and GBP/JPY to continue over the medium term, but expect the EUR/JPY and AUD/JPY to grind lower toward the end of the year. Our base case remains intact: the USD/JPY range trades during the summer before starting to move higher in the fall eventually to 125–130 by 1H16."
"At the upcoming policy meeting, we expect the BoJ to reaffirm its position relative to the other major central banks by taking a bullish stance on the economy and inflation and by reiterating that policy will stay on hold, albeit with an easing bias."