JAPANESE INTEREST RATES ARE STILL GOING NOWHERE
In truth the Japanese currency will start the new year on a knife edge, its fate very much prey to developments beyond Japan.
Developments within Japan have been few, at least as far as we’re concerned here. The Yen still completely lacks domestic interest rate support. The Bank of Japan (BOJ) has the monetary taps wide open. Short rates are negative, yield curve control keeps ten-year Japanese Government Bond yields close to zero. The BOJ is also still buying huge amounts of bonds as part of its quantitative easing program. It did start to buy slightly fewer in 2018, but has strenuously denied that this amounts to monetary tightening.
Indeed, the BOJ is still pledged to keep those taps open until annualized inflation sustainably hits 2%. At last look it was 1.4%, having not been higher than 1.5% all year. If a global slowdown is coming, it seems unlikely that Japanese inflation will get anywhere near target.
STILL, US RATES MIGHT NOT MOVE MUCH EITHER
So, what is the Yen’s likely fate in the first quarter? Well, the US Dollar has come under some broad pressure as it becomes clear that the Federal Reserve will be more cautious in raising interest rates than it was in the year just gone.
Of course, even if a pause comes, the US Dollar will still enjoy huge yield advantages over the Yen. A Fed hiatus alone probably won’t see USD/JPY much weaker over the quarter. What might, though, is a serious bout of risk aversion.
Comments
Log in or sign up to join the conversation.