20 Jan 2014
EUR/JPY remains in bullish territory on longer-term central bank expectations
FXstreet.com (London) - EUR/JPY has slid slightly from its earlier high at JPY131.357 but remains up on the session. EUR was given support by stronger-than-expected Italian industrial orders which suggested that business confidence could be returning despite credit contraction.
EUR bullish on diverging central bank balance sheets
EUR/JPY saw a bullish trend though the fourth quarter of 2013 and running into this year, largely on their relative balance sheet positions. While both are battling deflationary pressures, partly in the form of imported price declines on currency strength, the respective central banks are pushing from opposing directions. While both have a two percent inflation target, the European Central Bank's balance sheet is for the moment in a period of contraction.
BoJ asset purchases to outstrip Fed
This contrasts sharply with the aggressive bond buying of the Bank of Japan, currently running at JPY7 trillion-a-month. As of next month, the size of Japan’s qualitative and quantitative easing purchases will outstrip the US Federal Reserves quantitative easing programme. As the Fed moves to relatively tighten its monetary policy, the BoJ’s aggressive asset purchase programme becomes more noticeable.
The Bank of Japan will announce its interest rate decision on Wednesday. While it will almost certainly hold its ultra-low rates at 0.1 percent, the accompanying statement will be under close scrutiny. Japanese core (ex-food) inflation is running at 0.6 percent, while its headline rate is running at 1.5 percent. Though Abenomics has gained some traction and reinflated the economy, the sales tax hike set to kick in on 1 April could be the pin that pricks that bubble. The BoJ accompanying statement may seek to underline the central bank’s willingness to ramp up its asset purchases to fight deflationary pressures, however the BoJ does not have the strongest record on pre-emptive action.
On the EUR leg, German/Eurozone ZEW economic sentiment surveys may provide some support for a strengthening EUR.
The German survey is expected to show further improvements from December, climbing from 62.0 to 63.0 in January.
EUR/JPY sheds some gains
EUR/JPY is currently trading at JPY141.20, up 0.11 percent on the day. It has pared some gains JPY131.357 following the Italian industrial orders statistics, but remains in bullish territory.
EUR bullish on diverging central bank balance sheets
EUR/JPY saw a bullish trend though the fourth quarter of 2013 and running into this year, largely on their relative balance sheet positions. While both are battling deflationary pressures, partly in the form of imported price declines on currency strength, the respective central banks are pushing from opposing directions. While both have a two percent inflation target, the European Central Bank's balance sheet is for the moment in a period of contraction.
BoJ asset purchases to outstrip Fed
This contrasts sharply with the aggressive bond buying of the Bank of Japan, currently running at JPY7 trillion-a-month. As of next month, the size of Japan’s qualitative and quantitative easing purchases will outstrip the US Federal Reserves quantitative easing programme. As the Fed moves to relatively tighten its monetary policy, the BoJ’s aggressive asset purchase programme becomes more noticeable.
The Bank of Japan will announce its interest rate decision on Wednesday. While it will almost certainly hold its ultra-low rates at 0.1 percent, the accompanying statement will be under close scrutiny. Japanese core (ex-food) inflation is running at 0.6 percent, while its headline rate is running at 1.5 percent. Though Abenomics has gained some traction and reinflated the economy, the sales tax hike set to kick in on 1 April could be the pin that pricks that bubble. The BoJ accompanying statement may seek to underline the central bank’s willingness to ramp up its asset purchases to fight deflationary pressures, however the BoJ does not have the strongest record on pre-emptive action.
On the EUR leg, German/Eurozone ZEW economic sentiment surveys may provide some support for a strengthening EUR.
The German survey is expected to show further improvements from December, climbing from 62.0 to 63.0 in January.
EUR/JPY sheds some gains
EUR/JPY is currently trading at JPY141.20, up 0.11 percent on the day. It has pared some gains JPY131.357 following the Italian industrial orders statistics, but remains in bullish territory.