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25 Jan 2016
JPY: Recent safe haven driven gains reversing – MUFG
FXStreet (Delhi) – Lee Hardman, Currency Analyst at MUFG, notes that the yen has continued to weaken modestly in the Asian trading session reversing safe haven gains from earlier this year.
Key Quotes
“ECB President Draghi’s signal last week that further monetary easing is likely in March has triggered a relief rally in risk assets which has extended further overnight. A short squeeze is resulting in a sharp rebound in the price of crude oil which has increased by around 25% during the last three trading days. In the current environment, we remain cautious over the ability for risk assets and currencies to sustain and extend gains in the near-term as global investor sentiment is likely to remain fragile.
The yen has also been undermined by building speculation that the BoJ could follow the ECB and signal that it is moving closer to easing monetary policy further at this week’s meeting. However judging by comments late last week from Governor Kuroda it appears that expectations for imminent easing could prove disappointed.
The yen is deriving more support as well from the sharp improvement in Japan’s current account surplus. The latest trade report revealed overnight that Japan recorded a second consecutive monthly surplus (seasonally adjusted) in December for the first time since early in 2011. The trade balance has been boosted by the sharp drop in the price of crude oil which has resulted in the volume of crude oil imports falling to their lowest level since 1988. Japan imported 195.5 million kilolitres of oil in 2015. The value of petroleum imports declined sharply last year by 41% to JPY8.18 trillion in 2015 which was the lowest amount since during the global financial crisis in 2009.
It supports our view that the yen is likely to be one of the best performing currencies this year. We believe that the yen weakening trend has now ended and there is scope for yen undervaluation to ease further in the year ahead. The strengthening of the yen earlier this year has provided support in favour our view although we do not expect that the recent sharp pace of strengthening will be sustained looking for more gradual upside in the year ahead.
The latest IMM report revealed as well that speculative demand is beginning to tentatively build for long yen positions. The main risk to our view is that the BoJ eases monetary policy further although we suspect that its negative impact on the yen would be more limited than previous QQE expansions as it exhibits diminishing returns.”
Key Quotes
“ECB President Draghi’s signal last week that further monetary easing is likely in March has triggered a relief rally in risk assets which has extended further overnight. A short squeeze is resulting in a sharp rebound in the price of crude oil which has increased by around 25% during the last three trading days. In the current environment, we remain cautious over the ability for risk assets and currencies to sustain and extend gains in the near-term as global investor sentiment is likely to remain fragile.
The yen has also been undermined by building speculation that the BoJ could follow the ECB and signal that it is moving closer to easing monetary policy further at this week’s meeting. However judging by comments late last week from Governor Kuroda it appears that expectations for imminent easing could prove disappointed.
The yen is deriving more support as well from the sharp improvement in Japan’s current account surplus. The latest trade report revealed overnight that Japan recorded a second consecutive monthly surplus (seasonally adjusted) in December for the first time since early in 2011. The trade balance has been boosted by the sharp drop in the price of crude oil which has resulted in the volume of crude oil imports falling to their lowest level since 1988. Japan imported 195.5 million kilolitres of oil in 2015. The value of petroleum imports declined sharply last year by 41% to JPY8.18 trillion in 2015 which was the lowest amount since during the global financial crisis in 2009.
It supports our view that the yen is likely to be one of the best performing currencies this year. We believe that the yen weakening trend has now ended and there is scope for yen undervaluation to ease further in the year ahead. The strengthening of the yen earlier this year has provided support in favour our view although we do not expect that the recent sharp pace of strengthening will be sustained looking for more gradual upside in the year ahead.
The latest IMM report revealed as well that speculative demand is beginning to tentatively build for long yen positions. The main risk to our view is that the BoJ eases monetary policy further although we suspect that its negative impact on the yen would be more limited than previous QQE expansions as it exhibits diminishing returns.”