Wednesday, October 28, 2015

BoJ easing coming, see USDJPY to hover around 125 mark - Goldman Sachs

FXStreet (Delhi) – Research Team at Goldman Sachs, note that the attention is turning to the BoJ at the end of the week, at which our Japanese economists have a long standing call for further easing.

Key Quotes

“We think $/JPY should move through 125 in the wake of the meeting should the BoJ ease as we expect.”

“Our Japan economists have long held expectations of easing at the 30 October BoJ meeting on the back of weak activity and declining inflation expectations. The call this week is a close one, but even if policy is unchanged at this week’s meeting we think the BoJ will ultimately need to loosen policy as their inflation forecast moves further out of sight – we see further $/JPY upside as a result. Ahead of this week’s meeting, $/JPY is trading lower than earlier in the summer and positioning remains light, which suggests to us that little easing is discounted in the currency. Our base case is for the BoJ to undertake:

• a maturity extension of existing JGB purchases,
• an increase in the runrate of JGB purchases from 80 to 90 JPYtn per year, and
• an increase in ETF purchases from 3 to around 5 JPYtn.”

“An upsizing of around 10 JPYtn should then be worth around 4%, pushing $/JPY near 125.”
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