JPY at 105?

With Japan’s onshore markets shut for the Golden Week, the rise in the Japanese yen was relentless, as Asia continued to accumulate JPY after the surprise ‘unchanged’ decision from the Bank of Japan (BOJ) on Thursday.

Bank of Japan
Source: Bloomberg

The USDJPY sank around 1%, pressing on the 107 handle and touching the lowest since October 2014.

The Yen has strengthened over 4% this year, and Eisuke Sakakibara, a former vice finance minister, in charge of currency intervention and nicknamed “Mr Yen”, predicted that the currency may appreciate to 105 in a few months, and could reach as high as 100 by the end of the year.

He argued that the Japanese economy can tolerate a USDJPY level at 105, and would only spur government intervention should the pair goes below 100. According to Sakakibara-san, yen’s appreciation is due to investor desire to seek safety as the world economy has become very ‘disorderly’.

Still, BOJ’s decision to maintain current policy settings have wrong-footed the financial markets, who were betting on more stimulus despite the divided views among economists and analysts. As a result, short yen positions unwound in a jiffy with USDJPY tumbling 3% on Thursday.

Any hopes that a stronger yen may reduce the risk for further yuan devaluation gained more traction today after China strengthened the Yuan fixing by the most in 10 years. In response to the dollar tumble brought about by a surging JPY, the PBOC raised the USDJPY reference rate by 0.6% to 6.4589 per dollar. In addition, a weaker USD may have helped to ease capital outflows as well as funding pressures in emerging economies.

 

Week ahead

Compared to this week’s battery of data and major central bank meetings, the coming week should be ‘quieter’. In US, the early-month non-farm payrolls will be the key data to monitor, where the consensus is for new jobs to total more than 200,000 in April, and demonstrating continued strength in the US labour market.

ISM manufacturing and non-manufacturing data, alongside durable goods orders are on the tap. Given the lack of a press conference following the 19-20 Apr FOMC meeting, markets will keep tab on several Fed officials’ speeches.

In Asia, we have the manufacturing PMIs of China, India, Japan and Singapore to keep traders entertained. Furthermore, Australia will face quite an exciting week with the Reserve Bank of Australia (RBA) policy meeting on 3 May, and earnings report from the big four Australia banks. On a similar note, Citic Securities, HSBC, as well as Singapore’s DBS will also announce their quarterly results next week.

The coming week will be a holiday-shortened one for many countries. China, Hong Kong, Taiwan, Singapore, Malaysia, Thailand and Vietnam will be closed on Monday, while Japan will only resume trade on Friday, 6 May.

 

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