Data and policy continue to line up for a weaker JPY. Kuroda has re-iterated his commitment to stimulus, stating, “it’s premature to discuss in an exact way about exit strategy”. Kuroda continues his battle against the deflation mindset; and, as the top chart shows, he is right to remain vigilant as this relationship foresees a weaker CPI over the next 6 months.

While the BoJ reemphases its commitment to a large balance sheet, the Fed is for now sticking to its intention to begin shrinking its balance sheet, perhaps as early as later this year. The bottom-left chart shows the relationship with USDJPY and the difference between the BoJ’s and the Fed’s balance sheets in growth terms. The red dot shows the latest observation. Clearly greater BoJ balance-sheet growth relative to the Fed would imply a higher USDJPY.

Finally, the bottom-right chart – which shows bank-lending growth reaching a 7-year high in Japan – highlights why the BoJ will be loath to do a U-turn in policy as there are clear signs (apart from sluggish inflation) it is working. (Please click on image to enlarge.)

Source: Bloomberg, Macrobond and Variant Perception