Cost of FX Hedging Pushing Yen Higher for Now

One of the strongest performers against the USD lately has been the yen, with USDJPY now probing 15-month lows. One of the main drivers has been the surging cost of FX hedging (assume rolling 1 year FX forwards). The top-left chart shows the pick-up for a yen investor...

BoJ to Keep Loose As No Immediate Sign of Target CPI

The set-up in Japan continues to favour a weaker yen. Inflation is coming, but the BoJ will want to be sure the train has arrived at the station before stepping off at the monetarytightening platform. The top-left chart shows the lagged effects of a weaker yen should...

BoJ Underscores Support for USDJPY

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,...

Buy USDJPY Dips

Fundamentals in Japan still support a weaker JPY. Yield differentials are one of the most important drivers of currencies and, as the top chart shows, this shows that USDJPY is becoming stretched to the downside. Also, as we highlighted in our Themes for 2017, the...

Japanese Equity Flows Diverge

October saw the BoJ’s announcement of increased stimulus, coordinated with the new targets for the GPIF, 25% each for foreign and domestic equities (up from 12% each), and a decrease in JGBs, from 60% to 35% of holdings.  Investors, both Japanese and foreign, have...

BOJ Putting Pressure on Other Asian Central Banks

Further yen weakness, in an environment of slowing global growth, will put pressure on other central banks to ease policy.  Although attention is rightly focused on the ECB, Japan’s biggest trade partners, who derive significant parts of GDP from trade with Japan, are...

Anti-QE in Japan

Last week’s BoJ meeting did not meet expectations of trying to soothe the Japanese bond market.  Yields have shot up, with 10y yields 50% higher in May as of this morning, largely a consequence of the BoJ succeeding in raising inflation expectations.  However, of more...
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