The Bank of Japan’s decision to stick with ultra-low rates looks set to pummel the yen and bolster the confidence of equity bulls, according to strategists.
The chorus of yen sellers is expected to grow after the BOJ doubled down on its position as the last global bastion of negative rates, they said. The nation’s red-hot stock market could enjoy a fresh round of gains as investors cheer the effects of a cheaper currency, they added. Governor Kazuo Ueda stuck to his dovish tone in the post-decision press conference.
Here’s what market watchers are saying about the decision:
Weaker Yen
Kengo Suzuki, senior market strategist at Mizuho Bank Ltd.:
“There’s no option but to see the yen weakening. Compared with the Fed which may resume hikes this year and ECB which may raise rate in July, policy divergence is quite big with the BOJ saying it will add easing if necessary. Dollar-yen may rise toward 142-143 area, but it is unlikely to pass through 145 and toward 150 like last year.”
Amir Anvarzadeh, market strategist at Asymmetric Advisors:
“Watch the yen march towards 145 and at some stage test the authorities by going towards October lows. The market will force the issue on BOJ but Ueda is leaving no off-ramp here suggesting that another big battle with capital markets is at hand. The whole issue is that currency is not in BOJ’s remit which has been a problem in times like these.”
Live Meetings
Viraj Patel, strategist at Vanda Research:
“I think the next two BOJ meetings are live. The idea around core inflation coming down in the second half of the fiscal year is getting increasingly challenged by each inflation data point. I would use JPY selloffs and JGB rallies as an opportunity to put on hawkish BOJ trades ahead of the next couple of meetings.”
Verbal Intervention
David Forrester, strategist at at Credit Agricole CIB:
“The BOJ has ramped up its dovishness a bit by adding wage increases to its goal of achieving 2% inflation in a stable and sustainable manner, which further distinguishes it from other G10 central banks. A faster move higher in dollar-yen and towards 145 is required to trigger FX intervention. I would expect verbal intervention to ramp up further before then.”
Stock Gains
Rina Oshimo, senior strategist at Okasan Securities:
“Since many market participants were probably expecting the continuation of the easing stance, I think the market passed without a hitch. The continued easing of monetary policy is likely to continue to fuel the inflow of funds into Japanese companies.”
John Vail, chief global strategist at Nikko Asset Management:
“Anyone who shorts the yen versus the dollar must realize that the authorities will likely intervene with little warning if it gets much weaker. Equities should continue to have some tailwinds from easy policy, but nothing calls for a bubble.”
Tomo Kinoshita, global market strategist at Invesco Asset Management:
“No BOJ action this meeting is likely to provide some relief to Japan’s equity market. The reaction in the currency market towards yen depreciation should also contribute to a moderate rise in Japan equities in the short run. I would wait for Governor Ueda’s press conference to see how the B0J is committed to continue its accommodative policy.”
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--With assistance from Daisuke Sakai, Yumi Teso, Aya Wagatsuma and Marcus Wong.
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