"If the dollar rises to 110 or 115 yen next year, the BOJ could afford to wait before easing again, as foreign exchange would continue to make a positive contribution to consumer prices"
-Maxime Botteron, an economist at Credit Suisse
The Japanese Yen was trading around 104 against the greenback on Thursday after the FOMC meeting. A sharp drop in Yen's value is definitely a welcoming sign for Shinzo Abe and his team, as he seeks for a weaker currency to boost growth in the world's third largest economy. However, analysts believe Japanese policymakers will be forced to pull the trigger next year to assure a long-term sustainable growth. According to Societe Generale, the USD/JPY can reach 115 over the next 18 months, as they expect more stimulus from the Bank of Japan. They admit that Abenomics have contributed to growth, pushing JGB yields to almost record lows, and lifting stock higher– all these developments are seen when the economy is improving. However, taking into account the consumption tax increase in April, they expect the BoJ to act even more aggressively.
While the recent economic performance is speaking in favour of further action from the BoJ, the Fed's smooth start in dialling down its stimulus programme gives Kuroda more time to decide on how and when to make further adjustments to their monetary policy. In case the Japanese policymakers leave their policy unchanged even as the Fed tapers the stimulus, the widening gap between the two countries will help keep the Yen weak against the buck, decreasing pressure on Japan's export-reliant economy.
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