Bill Diviney, FX Strategist at Barclays Bank, on USD/JPY and future BOJ monetary policy actions

We forecast USD/JPY to reach 100 in one year. I think in the near term one of the most important events would be the first BOJ policy meeting under Kuroda, which takes place on 3-4 April. Our economists are looking for an extension of the maturity of JGBs purchased under the Asset Purchase Program. At the moment the Bank of Japan purchases bonds up to 3 years maturity, whereas we are looking for them to start purchasing bonds up to 10 years. This would have an impact on long-term interest rates. In addition to that, we are anticipating more asset purchases over the coming year. Thus, I believe these two things combined should probably be sufficient to satisfy market expectations. I expect that we will see USD/JPY moving higher; hence, the Yen is likely to weaken.

Actually, there are two meetings in April, and for the 2nd meeting on the 26th we anticipate some further easing measures. Firstly, we look for a cut in the interest on excess reserves. At the moment it is 0.1%, whereas we foresee it to be cut to 0.05%, which would have a weakening effect on the Yen. Secondly, we anticipate more purchases of risky assets, for example, corporate bonds, ETFs. Another thing we think is quite possible too, is the introduction of forward rate guidance, and at the 7 March meeting we already had one member proposing this. His proposal was that until the 2 % inflation target is achieved, the Bank of Japan should commit to holding interest rates very low. Therefore, we expect that some form of commitment will be introduced at the second meeting. I think all of these things combined, should definitely help the Yen to move another leg lower.

Actually, I do not think so. Clearly, there was opposition to any policy involving FX intervention at the G20 meeting. Without any direct FX intervention, I do not believe Japan`s policies are controversial enough to cause any international concern.  What Japan is doing is using domestic policy tools for domestic goals, in line with the G-20 statement. In other words, they are using domestic monetary policy to raise the inflation rate, while the FX rate is not the policy goal. Considering that, I do not believe that further weakening in the Yen on the back of further monetary easing should be a cause for concern internationally. 

In the short term we expect USD/JPY to trade at 93, which is not far from spot at the moment. However, there are upside risks to this given additional easing by the BoJ, which is expected to be announced soon. In one year we are looking USD/JPY to rise to 100. In terms of EUR/JPY, our one-month and one-year forecasts are 128, but we think there are downside risks to the euro in the near-term.