© Kohei Iwahara
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Our basic scenario is that we do not expect the Bank of Japan ease further its monetary policy. This is due to the fact that the focus of the BoJ has shifted to real wages development. First of all, one of the main important reasons behind this market volatility is lower oil prices. If there would expand the monetary policy and weaken the Yen, it will simply reduce consumers' purchasing power, because Japan imports most of its energy. Therefore, from this point of view there is going to be a delay on easing from the BoJ.
On top of that, generally the Japanese companies are quite comfortable with the Yen as long as it is above 115 levels, and currently it is at 118. Thus, I believe the bank will prefer to save ammunition, because they have been pushed to extreme. I suppose they want to observe the developments in the Spring negotiations and say they will take decisive actions only when it became necessary. Thus, we do not expect any actions during the meeting in the end of the January.
In contrast of what was mentioned above, Deutsche Bank notes that if the Bank of Japan implements more easing, then it could ruin its credibility. Do you agree with this statement? Do you see any possible risks for the Japanese economy in case of further easing in the BoJ's monetary policy?
I believe that the effect of additional easing will be short lived, because this market risk aversion is global, it is not just in Japan. Certainly there is a risk that the Yen will weaken a little bit, but the reaction will be temporary, if the Bank of Japan eases.
What will be the major drivers of Japanese Yen and what are your forecasts for USD/JPY in the short and long term?
At the moment we tend to think that there are lot assumptions on our outlook. We think that the market volatility will recede relatively soon and the Fed is going to hike its rates this year twice. At the point in time we believe that is the most important driver of the Yen against the US Dollar, and we expect the Yen to depreciate to 125 by the end of this year.