USDJPY daily
Societe Generale (SocGen) discusses the recent dynamics in Japan’s inflation rates and its impact on monetary policy, particularly focusing on the implications for the Nikkei Index (NKY) and the USD/JPY currency pair. The “core-core” inflation rate in Japan has settled at 2.2%, prompting debates on the future of negative interest rate policies and yield curve control. The depreciation of the yen since the Covid pandemic onset and its near record-high against the USD are also highlighted as critical factors influencing policy decisions.
Key Insights:
- Japan’s “core-core” inflation rate stabilization at 2.2% may signal the end of negative interest rate policies and yield curve control sooner than anticipated.
- The significant depreciation of the yen and its position near post-1990 highs against the USD underscore the urgency for policy adjustments.
- Historical USD/JPY movements indicate potential for drastic fluctuations, recalling its drop from above 160 in April 1990 to under 80 by 1995.
- Current futures trading shows a predominant short position on the yen, ahead of a crucial Bank of Japan (BoJ) meeting that could mark the beginning of policy divergence reversal with the US.
- SocGen favors the view that an imminent shift in BoJ policy, possibly preceding a Fed policy change, could signal a turning point for USD/JPY, opposing the consensus short position on the yen.
Conclusion:
SocGen’s analysis suggests that Japan’s inflation dynamics and the depreciating yen are nudging the BoJ towards a pivotal policy shift. The anticipation of this shift, especially in the context of a significant USD/JPY currency pair fluctuation history, has crucial implications for traders and the broader financial market. With a critical BoJ meeting on the horizon, SocGen posits that the prevailing short yen positions might be misguided, expecting a potential reversal in USD/JPY trends as a result of changing monetary policies in Japan and possibly in the US later in the year.
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