Recap 1-22-13: Short Term Outlook for $Yen


The BoJ meeting disappointed. The next catalyst probably isn’t until February, when Shirakawa’s replacement in the Diet is discussed. Following that, the next BoJ meeting on 2/14 is likely to be a dud. The next substantive catalyst is probably the April BoJ meeting, when the new governor and deputy governors take office.

Given that:

  • The next catalyst is several months away
  • The Yen is very oversold
  • USDJPY just below the 90 level that Abe suggested was appropriate
  • Worries of a currency war brewing (BBG reported a minor German official saying Germany may want to discuss the Yen at the G20)
  • Mid-Feb thru March often sees sizable JPY buying flows from domestic plays due to the end of the Japanese fiscal year
  • The possibility of less dovish than expected remarks from BoJ governor candidates
  • The likelihood that the new governor and deputy governor will need time to build a consensus within the BoJ policy board as well as staff members before enacting aggressive policy (both of the dissenters against the 2% target at today’s policy are new appointees, having just joined last July. Policy appointments last 5 years, although members of course could resign in protest.)

USDJPY could see some retracement. With the cross not far from the highs, risk management should be reasonably straightforward.


  • BoJ:
  1. set a 2% inflation target, to be achieved “at the earliest possible time”
  2. will pursue open-ended asset purchases and increase the APP by 10trn, but will only start in 2014.
  3. There was no mention of an IOER cut, and no increase in purchased JGB maturities
  4. 2 votes were cast against the inflation target, by Sato and Kiuchi. (Neither are deputy governors) They thought the 2% target would be too high to be achieved sustainably
  5. Miyao proposed to continue with ZIRP until the 2% target is in sight, but all other 8 members voted against him.
  6. The Japanese government welcomed the BoJ statement

The move disappointed markets, and attention will now focus on who Shirakawa’s successor will be in February, followed by his first BOJ meeting in April. Expectations are for an eventual cut in the IOER rate to 5bps from 10bps, and an extension of JGB maturities from 3 years to 5 years.

  • German Zew jumped to 31.5 vs 12 exp and 6.9 prev
  • Existing Home Sales declined to 4.94mm vs 5.1mm exp and 5.04mm prev

Upcoming Data:

  • Wed: BoE Minutes, UK Jobless Claims, BoC, Japan Trade Balance, China HSBC Flash PMI
  • Thu: EU PMI, US Jobless Claims, Markit PMI, BoJ Minutes
  • Fri: ECB LTRO Announcement, German IFO, CanadaCPI, US New Home Sales,